Business of banks may grow 15%

Brokerage firm Motilal Oswal expects 14-15 percent growth in the business of banks analysed by it during 2013-14 and 2014-15.

The firm expects stabilization in asset quality and margins, higher trading gains for the banks analysed by it.

This would enable the banks to report a compounded annual growth rate of at least 15 percent in earnings over the above two years, the firm said in a report.

The bottoming out of economic growth, easing interest rates and recovery in investment activity may reduce incremental delinquency of borrowers, the report notes.

Return ratios are expected to be healthy, with RoA of around 0.9 percent and RoE of at least 15 percent for state-owned banks, while for private banks it is expected to be 1.7 percent and 18 percent respectively.

The firm recommended investors to invest in banks with adequate capitalization, strong liability franchise and those who have recognized stress upfront.

The report expects private banks to benefit from higher trading gains. But it cautions that rise in employee expense (wage negotiation related provisions and standardization of actuarial assumption for pension) may spring a negative surprise.