Lower growth, loan slippages likely to cloud banks’ June quarter

Mumbai: Indian banks could report a slowdown in the recovery momentum seen in the March quarter, with asset quality outlook dimming again after a brief bright interlude and system-level growth moderating to 5.8%, analysts said.

Many banks indicated a drop in collection efficiency, leading to possibly even more slippages in the first half of FY22.

But even here, there would be winners and relative stragglers.

Adequate provisions, capital buffers, diversified assets and low-cost liabilities should cushion large private banks. With exposure to more vulnerable segments, mid-sized banks, small finance banks and NBFC MFI are seen reporting a relatively weaker performance, ICICI Securities said in a note.

“With the second wave of the pandemic forcing lockdowns yet again, the road to recovery has been elongated as bank credit off-take has failed to garner momentum and has remained in the range of 5.5-6%,” Kajal Gandhi, research analyst, ICICI Securities said.

“However, given muted credit growth, absence of substantial treasury and revival in opex should keep operational performance moderate. Profitability is expected to witness a healthy surge led by lower provisions.”

Business activity has been sluggish due to the second Covid wave.

As per Motilal Oswal, systemic growth moderated to 5.8% and it expects business growth to remain modest with systemic loan growth of 9% for the current fiscal year.

“Growth in working capital requirements in the corporate segment would be monitorable,” said Nitin Aggarwal of Motilal Oswal. “We expect private bank loans to grow14%. In that universe, Axis Bank could see loan growth of 13%, ICICI Bank at18% while HDFC Bank at14%.”

On the asset quality front, collection efficiencies declined by 10-35% in April and May, compared with March, and MFIs are likely to report the steepest decline of nearly 35%.

As per ICICI Securities, the gross NPA (GNPA) ratio increased 20 basis points sequentially to 5.3% in the June quarter. Large private banks are seen to be better placed with a 5-15 bps sequential rise in GNPA while mid-sized banks with a focus on MSME segments like DCB Bank, City Union Bank and banks with microloan exposure like Bandhan Bank and IndusInd Bank are expected to see higher delinquencies.

“We estimate slippage to remain high resulting in an uptick in GNPL ratios,” said Aggarwal. “We estimate the impact to be much lower versus the first lockdown, although recast 2.0 could also be higher, led by the retail and MSME segments while the corporate segment is likely to remain resilient.”