BFSI Sector Q3 Earnings Forecast: Moderate Profit Margins But Continued Growth

The BFSI (Banking, Financial Services, and Insurance) sector is expected to show resilience in the third quarter with steady growth, although operating profits are projected to be subdued. This outlook emerges amidst a financial landscape characterized by healthy growth trends paired with low credit costs. Nonetheless, banks are poised to face constraints on their earnings due to a persistent decline in net interest margin (NIM) and increased operational expenses (opex).

Operating Profit and Net Interest Income

For covered banks, net interest income is anticipated to observe a sequential quarterly growth of 1% and an 8% year-on-year growth, barring HDFC Bank Ltd. Operating profit, on the other hand, may reveal a more tepid scenario, with expectations of a 1% quarter-on-quarter increase while possibly declining year-on-year by 4%, excluding HDFC Bank. This dip is primarily attributed to public sector banks making adjustments retroactively for salary increments.

Profit After Tax and Profitability Metrics

Profit after tax (PAT) could see a marginal uptick, with projections indicating a 5% year-on-year growth, not accounting for HDFC Bank. Despite the modest growth in PAT, the profitability indicators like return on assets are expected to stay robust within the sector. This resilience owes to the moderation in NIM coming from a historically high base. Incorporating these trends, a loan growth of 16% year-on-year and 4% quarter-on-quarter is forecast for the banks under coverage.

Growth in Affordable Housing and Other Financial Sectors

The quarter is also likely to deliver robust growth rhythms for affordable housing financiers, with expectations of a 6% quarter-on-quarter growth, alongside a positive trajectory in asset quality. The moderation in spreads is believed to be partially compensated for by shifts in the loan mix. Gold loan non-banking financial companies (NBFCs), while entering a seasonally slow quarter, might maintain steady yields.

Overall, the BFSI sector is bracing for a quarter where the subdued operating profits may be balanced by steady progression in growth and stable asset quality indicators.

BFSI, Earnings, Growth