Dull assets may eat banks' profits from Q3: Barclays Caps

Mumbai: The inability of large corporates to service their debt obligations will start having an impact on banks' profits from the December quarter onwards, Barclays Capital said today.

"We expect the credit quality issues from large borrowers to start becoming evident in the Q3 results, particularly in the restructured loans category," Barclays Capital equity research arm said in a report ahead of the Q3 results, which will be kicked off with the Infosys numbers on Thursday.[caption id="attachment_179289" align="alignleft" width="380" caption="Time to bloom. Reuters"][/caption]

The research draws attention to the pending amounts under the corporate debt restructuring (CDR) mechanism.

At the end of the second quarter of current fiscal, Rs 24,600 crore of debt was pending restructuring versus Rs 75,00 crore in the June quarter and Rs 18,000 crore for the entire FY 2010-11, it said.

According to a StanChart report, however, this figure is going to hit a whopping Rs 50,000 crore this quarter if the Air India, GTL and Bharati Shippyard CDR proposals go through.

"Going forward, we expect it to increase further based on recent news flow on banks referring their debt to Kingfisher Airlines, Bharati Shipyard and others for the CDR process," it said.

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On other key parameters, banks will post stable net interest margins for the quarter even as business growth will be slow, the Barclays report said.

Banks are also expected to report muted fee incomes due to the slower loan growth and lower incremental sanctions, it said. All the lenders, except IndusInd Bank, are yet to come out with their numbers for the December quarter.

PTI