The September quarter results of private banks indicate that earnings recovery is likely to be quicker than earlier expected, with collections at 95 percent within a few percentage points of pre-COVID levels, brokerage Credit Suisse said in a report.
The September quarter results of private banks indicate that earnings recovery is likely to be quicker than earlier expected, with collections at 95 percent, or in the range of few percentage points, of pre-COVID levels, brokerage Credit Suisse said in a report.
Data showed that during the quarter, a rise in corporate stress pool and likely restructuring was only around 2 percent of loans. In consumer segments, banks’ asset quality held up better than other lenders and stood at levels where banks are comfortable to pursue growth, Credit Suisse noted. Even in more-impacted segments like CV/MFI, bank collections are at over 90 percent.
Meanwhile, faster economic rebound and market share gains from NBFCs aided consumer loan growth for private banks. The segment has been grew at a robust 2-6 percent QoQ during the second quarter. This likely to accelerate in the H2FY21.
Lending spreads have also expanded by 40-60 bps over the past year, as the drop in funding cost outpaced the drop in lending yields. This resulted in stable NIMs helping offset the drag of excess liquidity.
This, along with fee income recovering to more than 90 percent of pre-COVID levels and contained opex, resulted in cost-to-income moderating and enabled banks to maintain pre-provision profitability at a high 2.5-3.5 percent of assets, Credit Suisse said.
Private banks now have NPL cover more than 75 percent and carry an additional 1-2 percent of loans as COVID provisions.
“Therefore, even as a post-moratorium pick-up in NPL slippage is likely in 2H21, we build in credit cost moderation from 2H21 for the larger banks (ICICI Bank, Axis Bank, HDFC Bank) and FY22 for IndusInd Bank,” the brokerage said.
Credit Suisse has upgraded the rating for IndusInd Bank to Outperform from Underperform and has raised the target price to Rs 700. It sees 28-32 percent upside for ICICI Bank and Axis Bank.