Banks are likely to have registered muted growth in the first quarter of the fiscal, and asset quality would be a key focus area. While they are expected to make further provisions for Covid-19-led economic uncertainties, the exact stress on their balance sheets would be understood only when the moratorium ends in August.
Private sector lenders led by Bandhan Bank and Federal Bank are set to start declaring their results for the April to June 2020 quarter from next week. South Indian Bank reported an 11 per cent growth in net profit for the first quarter with gross NPAs contained at 4.93 per cent.
This was also the quarter when the national lockdown impacted the economy and led to a slew of measures by the government and the Reserve Bank of India to increase liquidity and prevent defaults by borrowers.
Initial data from lenders like HDFC Bank, IndusInd Bank and Bandhan Bank have revealed a sharp rise in deposits in the first quarter of the fiscal. While HDFC Bank also reported a double-digit growth in advances and loans, for many others it has been muted, in single digits.
“Banking sector earnings are likely to remain muted, affected by the Covid-19 outbreak and its resultant impact on growth and asset quality. While the moratorium and standstill benefits continue, we expect banks to further strengthen their balance sheets by making healthy provisions,” said Motilal Oswal in a report, adding that declining interest rates along with higher liquidity in the balance sheets should keep margins under pressure (at about 20 basis points for private banks).
“We believe the proportion of loans under moratorium would decline gradually. Thus, the collection efficiency trend is an important near-term metric to assess the banking system’s health,” it further said.
A note by ICICI Securities said banks with relatively lower moratorium, higher contingent provisions and secured retail portfolio, including HDFC Bank and Axis Bank, are seen reporting steady performance.
“Earnings growth is seen broadly flattish year-on-year (y-o-y), led by the base effect and elevated credit cost. Public sector banks are seen posting optically better growth at 80 per cent y-o-y, owing to the base effect. State Bank of India is seen reporting earnings broadly at ₹4,795 crore, including proceeds from the stake-sale of SBI Life,” it said.
It also cautioned that the probability of slippages into non-performing assets (NPA) still remains uncertain, and so clarity on the product-wise trend in moratorium and repayment would be watched.
Banks too, have been bracing for any slippages and defaults when the moratorium ends and a slew of banks have either raised capital or are in the process of raising capital. Estimates indicate that banks would raise over ₹90,000 crore of capital to meet such uncertainties.
Axis Bank, YES Bank and ICICI Bank plan to raise ₹15,000 crore of capital each, while HDFC Bank has said it will raise ₹50,000 crore in the next 12 months by issuing various debt securities. Kotak Mahindra Bank has raised ₹7,440 crore through a qualified institutional placement. SBI and Punjab National Bank also are set to raise funds.