Brokerage firm CLSA expects large banks’ performance in the fourth quarter of 2021 to surprise positively in terms of asset quality and pre-provision operating profits (PPOPs). However, the management discussions are expected to be on the possible impact of the second wave of COVID-19. The CLSA note states that Axis Bank, ICICI Bank, and State Bank of India remain its top picks in the sector.
The brokerage firm notes the second wave of COVID-19 was unlikely to impact corporate loans. It states: “The Supreme Court stay on NPA has been vacated. Banks have been reporting pro-forma NPAs, and we compare the fourth quarter of FY21 expectations to pro-forma third quarter of FY21 numbers.” CLSA expects slippages to be moderate for all large banks compared to the third quarter of FY21, except SBI, which had negligible slippages then.
The firm does not expect any impact on the corporate credit cycle. The quantum of regional lockdowns may have some residual impact on retail asset quality in FY22.
“We estimate 30-90 basis points credit cost (non-annualised) for banks in the fourth quarter of FY21, and most banks are likely to carry forward a majority of their contingency provisions into FY22 (50-100 basis points of loans for top private banks),” read the report.
CLSA also states that the core PPOP growth of large private banks will remain strong at +15 percent year-on-year.
The CLSA report also stated the brokerage firm’s bank-wise expectations:
HDFC Bank: CLSA expects core PPOP of +16 percent year-on-year (YoY) and PAT growth of 20 percent YoY. Commentary around RBI’s ban on cards and corporate deleveraging will be key.
ICICI and Axis Bank: The brokerage firm expects 18-25 percent core PPOP growth. Slippages will moderate, and profit and loss provisioning should come down for Axis Bank. It expects ICICI Bank and Axis Bank to carry +1 percent of loans as contingency provisions into FY22F.
Kotak Bank: Loan growth picked up in the third quarter of FY21, and CLSA expects 5 percent quarter-on-quarter growth in the fourth quarter of FY21.
HDFC Limited: CLSA states that the growth of assets under management will inch up to 11 percent YoY. NII growth to remain robust but moderate at 16 percent YoY.
State Bank of India: The note states that slippages of over Rs 15000 crore (0.6 percent of loans) will be higher than the third quarter of FY21.
IIB/RBL: RBL’s PPOP will remain flat YoY, and provisions should remain elevated (+400 basis points of loans) given low coverage. IIB’s PPOP growth is expected at 8 percent YoY.
MFIs/NBFCs: For MFIs, the gap between PAR and NPAs was high in the third quarter of FY21. So, the brokerage firm states, there is a risk of a material increase in NPAs for Bandhan Bank. Among MFIs, CREDAG has front-ended the provisioning and should see an improvement. Improving collections for SHTF should aid asset quality.