Banks' Q4 earnings to drop

The banking sector, which had seen good set of numbers in the third quarter, is likely to report subdued earnings in the fourth quarter of 2008-09 due to slowdown in credit growth and pressure on interest margins, analysts say.

"The earnings performance of banking universe is likely to remain muted in fourth quarter due to lower business growth, negative impact of hardening interest rates and provisions made for concessions on restructured accounts," said brokerage firm Religare Hichens Harrison.

Against the RBI's projection 24 per cent, credit growth is expected to be in the range of 19–19.5 per cent during 2008-09, it said.

Besides, worsening of earnings quality and re-structured assets are likely to create grey areas and identification of bad debt will thus be difficult, giving rise to investor uncertainty over asset quality of banks, said another brokerage entity Prabhudas Liladhar.

There is downward bias on the margins due to lower incremental credit deposit ratio, Prime Lending Rate cuts and high interest rates on deposits accruing for a full quarter, Abhijit Majumder of Prabhudas Liladhar said.

Banks are expected to announce their result beginning the third week of April.