Q3 Previews: Yes Bank's Loan Book Likely Subdued On NPA Transfer; Kotak Bank's Credit Growth Seen Strong

On BSE, Yes Bank shares ended at ₹19.80 apiece down by 1.74%. Also, Kotak Bank shares slipped marginally to close at ₹1,763.25 apiece on Friday.

In Q2 of the current fiscal, Yes Bank posted a net profit of ₹153 crore versus ₹311 crore in Q1FY23, down by 50.80% sequentially. Yes Bank's net profit has dipped 32.20% from ₹225 crore in Q2FY22. The profitability was under pressure due to a sharp upside in provisioning. The bank's provisions were at ₹583 crore against ₹377 crore in Q2FY22. Net income however soared to ₹2,911 crore from 2,290 crore in Q2FY22.

On the other hand, in Q2FY23, Kotak Bank posted 27% YoY growth in net profit to ₹2,580.68 crore. While net interest income climbed by 26% YoY to ₹5,099 crore. Gross NPAs slipped to 2.08% from 2.24% in the June 2022 quarter and 3.19% in the September 2021 quarter. net interest margin (NIMs) was at 5.17% in Q2FY23, which was 4.4% in the year-ago period.

What to expect from these two banks in third quarter of FY23? 

Yes Bank Q3FY23 preview:

According to Emkay Global, Yes Bank's gross loan growth could appear subdued in Q3FY23 due to the NPA transfer to ARC. Notably, lower LLP should aid profitability. Slippages to remain elevated, but NPA transfer to ARC should meaningfully reduce NPAs.

In its preview note, Kotak Institutional Equities said, "We expect NII to grow ~13% yoy reflecting the underlying business growth. Business momentum is gaining traction across retail and MSME segments but overall loan growth to be lower than industry average at 12% yoy. Deposit growth at 16% yoy is meeting the business requirements comfortably. We expect NIM qoq at ~2.5% (stable qoq). Revenue growth pressure to remain high especially led by weak treasury income."

Further, the brokerage added, "We would see a sharp reduction in gross and net NPL ratios with the transfer of NPL to JC Flowers ARC now complete (no earnings impact with this transaction). The near-term growth looks comfortable as the bank has raised the desired capital through preferential placement. Expect the bank to highlight that all the issues pertaining to the previous cycle is now completed."

Kotak Bank Q3FY23 preview:

Emkay expects Kotak Bank's margins to come off QoQ, but strong credit growth and lower other income base due to heavy treasury loss last year should boost PPoP growth. Slippages to remain similar to that in 2Q.

ICICI Direct in its note said that during Q3FY23, Kotak Mahindra Bank is expected to report strong growth in advances of 22.5% YoY, 5.4% QoQ to ₹3.09 lakh crore while deposits are expected to grow 12.5% YoY, 5.6% QoQ to ₹3.43 lakh crore. CASA ratio is seen steady at ~56% of deposits. NII is estimated to grow 24.2% YoY to ₹5,383 crore while NIMs are expected to improve ~13 bps QoQ at 5.3%. Slight moderation in C/I ratio can be seen in Q3FY23 (CI to be at ~48.5%). Thus, the brokerage expects 26.6% YoY, 4.6% QoQ growth in earnings at ₹2,699 crore. GNPA is expected to improve ~13 bps QoQ to 1.95%, led by improvement in retail segment.

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