Ratings agency Moody's has a negative outlook for Asia Pacific banks for 2020. They believe the operating environment is worsening because the US-China trade dispute is weighing on gross domestic product (GDP) growth.
Alka Anbarasu, Vice chairman and senior credit officer-financial institutions group at Moody's Investors Service and Mrutyunjay Mahapatra, MD and CEO of Syndicate Bank shared their views and outlook for the space in an interview with CNBC-TV18.
Anbarasu said broadly the outlook is for Asia-Pacific banks and this outlook is driven by some of the topics including US-China trade tensions, high leverage in many countries as well as low interest rate environment that is impacting banks’ profitability. "Specifically, when it comes to Indian banks, we do think that there is a read-over of some of these risks even for Indian banks. To a large extent, the outlook that we have on the Asian-Pacific banks has a read-through impact even for the Indian banks,” said Anbarasu.
Meanwhile Mahapatra said they had a different outlook “The top non-banking financial companies (NBFCs), which were going through concerns, the outlook has only improved."
" The big names, which were creating this perception problem are on the way of resolution. I believe that the asset quality pressures, which we thought would rise their heads again, are coming back to a normal path of normal slippages and net slippage ratios will also be pretty much controllable,” he noted.
Talking about provisions and slippages with regards to Syndicate Bank per se Mahapatra said, “On asset quality front, the outlook is a little negative. What we are looking at is that Reserve Bank of India (RBI) is taking industrywise view of all banks, which is a global practice. So, divergence provisions are likely to be a little higher and also some of the insolvency and bankruptcy code (IBC) related resolutions – if they get into the next aging bracket because of lack of resolution then that can bring a little more provision. However, new slippages are well within control.”
When asked if there would be an decline in incremental slippages in Q3, Mahapatra said, “There is one lumpy account. I cannot take the name but it is a public sector undertaking (PSU) unit. There is a government of India resolution plan which is in progress."
Talking about loan growth, Mahapatra said, “Q2 was good over Q1. We did around 7.5 percent total but we propose to bring in many other things which are likely to give some amount of growth and we have large number of proposals. Moreover, NBFCs are also looking up, so that will also give some growth. I hope we will see similar growth in Q3 as we have seen in Q2,” Mahapatra further mentioned.
When asked about profitability of private sector banks, Anbarasu said, “For some of the private sector banks like HDFC, profitability has always been at a higher level than most other rated banks that we have in India but for ICICI Bank and Axis per se, we do think that they have done a lot of work in terms of improving their provisioning coverage. So in that context, credit cost should come down.
"On top of this, the banks are well capitalised so their ability to garner new and incremental business is higher and that should boost profitability for these banks. The credit costs are still at a cyclically higher level and they are coming down but gradually. Nevertheless these banks are the ones where we do expect improvements in profitability,” Anbarasu added.Speaking about Yes Bank and RBL Bank, Anbarasu said they do not rate RBL Bank but when it comes to YES Bank, we put out a press release on a rating action just last week where we had downgraded the bank’s ratings by two notches. "In our rating release, we do talk about some of the uncertainties or execution challenges around the capital raise that the bank has planned and we will watch the story as it goes along,” she added.