New Delhi [India], October 6 : As the earnings season for the second quarter of FY25 unfolds, public sector banks (PSBs) are expected to see a slight dip in profits compared to the previous quarter, according to a report by Motilal Oswal.
The report estimates that PSBs' Profit After Tax (PAT) will decline by 0.6 per cent quarter-on-quarter (QoQ), while showing a stronger year-on-year (YoY) growth of 17.2 per cent.
"We estimate PSBs to report moderate earnings growth of 17.2 pc YoY/ a decline of 0.6 pc QoQ in 2QFY25," the report stated.
The slower pace of growth can be attributed to flat net interest margins (NIMs) and a slight increase in loan loss provisions (LLP). The Net Interest Income (NII) for PSBs is expected to grow by around 6 per cent YoY, although interest margins are likely to remain under pressure.
Despite these near-term challenges, the report suggests that public sector banks are on track to post a compound annual growth rate (CAGR) of 15 per cent between FY24 and FY26, pointing to sustained long-term growth.
In the private sector banking space, the report forecasts mixed results for the same quarter. For private banks under the coverage, Pre-Provision Operating Profit (PPoP) is expected to grow by 12 per cent YoY and 1 per cent QoQ.
However, PAT growth is predicted to be more modest, increasing by 5 per cent YoY and 0.6 per cent QoQ.
"For our private bank coverage universe, we estimate a PPoP growth of 12 pc YoY/1 pc QoQ and a PAT growth of 5 pc YoY/0.6 pc QoQ in 2QFY25," the report added.
Looking ahead, private sector banks are expected to experience steady profitability growth, with earnings projected to grow at a CAGR of 12.4 per cent over FY24-FY26.
Overall, while both public and private sector banks may face moderate growth in the second quarter due to margin pressures and higher provisions, their long-term earnings prospects remain positive.