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Indian banks still not out of the woods, says ICICI Direct

Indian banks still not out of the woods, says ICICI Direct

Indian banks still not out of the woods, says ICICI Direct
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By Ankit Gohel  Jul 2, 2020 5:21:30 PM IST (Published)

The government recently announced measures for the banking as well as the non-banking financial sectors but industry experts are not convinced as to whether these efforts will turn the tide.

The government recently announced measures for the banking as well as the non-banking financial sectors but industry experts are not convinced as to whether these efforts will turn the tide.

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“The economic slowdown kept business growth in single digits, which further got accentuated by lockdown amid COVID. Moratorium by the RBI kept asset quality stable though a revival in repayment (post end of the moratorium in August) remains uncertain,” ICICI Direct said in a report.
In Q4FY20, the Indian banking system witnessed a significant correction amid fears of the emergence of COVID and its impact on business growth and asset quality. With lenders preparing for an unforeseen rise in NPA, provisioning remained elevated impacting the profitability of many players.
The proportion of moratorium varied vastly with large private banks at 20-30 percent book in moratorium while mid-sized banks reported around 35-70 percent based on the composition of the book (higher for micro finance, CV, LAP, etc).
The NBFCs have 50-70 percent book under moratorium and are trying to manage liquidity as the majority did not receive moratorium from banks, the report noted.
The brokerage said that preservation of capital is the top priority followed by recovery while growth has taken a backseat.
It expects advance growth to remain muted in FY21E. MSME segment may witness traction as banks are disbursing loans under credit guarantee schemes, while traction in the retail segment may remain more stringent due to risk averseness.
“As ambiguity remains on the assessment of moratorium by each lender, it is difficult to ascertain faith of asset quality. However, exposure to smaller ticket size loans in rural areas and essential services (for example MFI loans) along with home loans in retail space are expected to revive faster,” ICICI Direct said.
The growth in advances was reported in single digits at 6.7 percent in FY20 to Rs 92.1 lakh crore. A gradual slowdown in the economy has been leading to deceleration in credit growth since April 2019, it noted.
“This slowdown in economic activity has been further accentuated by the emergence of COVID. Lockdown and falling confidence level of consumers is expected to lead to a contraction in GDP in FY21E. Thus, it is believed to keep advances growth moderate in bare minimum positive territory,” ICICI Direct said.
Moreover, a lockdown in the first two months of the fiscal and a gradual recovery in capex, discretionary spending in the unlock period are seen impacting fresh disbursements; lower repayment amid moratorium is likely to keep credit growth at a multi-year low.
The brokerage expects the corporate segment to bear the brunt led by a gradual uptick in capacity utilization and the absence of large capex plans. Job losses, pay cuts, reduction in discretionary spending and increasing caution of lenders on unsecured lending are seen impacting growth in the retail segment ahead.
Further, gold loans are expected to witness traction as the majority of lenders have geared up disbursements in the segment. While corporate and retail segments are expected to remain weak, agriculture and the MSME segment may witness relatively better growth, ICICI Direct said.
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