With banks gearing up to close the financial year and announce results for the fourth quarter and full fiscal 2020-21 in the coming weeks, analysts and experts believe that the Supreme Court verdict on loan moratorium will have marginal impact in terms of their earnings. It is expected that most lenders are likely to move into expansion mode now thanks to signs of economic recovery and improved credit demand.
“Our analysis indicates the earnings impact of the residual exposure is not very material,” said Edelweiss Research in a recent report.
Also read: Loan moratorium: SC orders full waiver of interest on interest
It has worked out three scenarios of such loans being 15 per cent, 20 per cent and 25 per cent of the moratorium books of its coverage banks. “The impact of a hit from loss of interest on interest for this moratorium period will, at most, result in a few basis points dent to the annual net interest margin, even if incremental costs are entirely borne by the banks and with no further government contribution,” it said.
Private sector lenders are set to announce their fourth quarter results in the coming weeks in April followed by public sector banks. HDFC Bank is scheduled to announce its results for the quarter ended March 31, 2021 and the fiscal year 2020-21 on April 17 while ICICI Bank will announce it on April 24.
A report by Axis Securities said it is not yet clear whether this incremental hit will be absorbed by the government or passed on to the banks.
“Even so, it will be a one-time hit and not have a material impact as it only pertains to interest on interest for five months period only. We expect that with NPA standstill withdrawn, banks will report actual NPAs in the fourth quarter of 2020-21 instead of reporting proforma NPAs, which could lead to some margin compression,” it said, adding that with better clarity on asset quality, banks with excess provisions such as ICICI Bank could result in some provision write-backs.
“On overall basis, we remain positive on banks due to improving macro-economic recovery feeding into better credit growth and limited asset quality disruption,” said Emkay Financial Services in a recent note.
Improved credit demand
Bankers have also been talking about increased credit demand in recent months.
CARE Ratings noted bank credit growth has stood largely stable compared to the last fortnight and returned to the levels observed in the early months of the pandemic (the bank credit growth ranged between 6.1 per cent to 7 per cent during March and February 2020).
“The credit growth stood at an almost similar level during the last two fortnights at 6.6 per cent and 6.5 per cent, marginally higher compared with last year’s level of around 6.1 per cent, as economic activities gather pace,” it said.
Comments
Comments have to be in English, and in full sentences. They cannot be abusive or personal. Please abide by our community guidelines for posting your comments.
We have migrated to a new commenting platform. If you are already a registered user of TheHindu Businessline and logged in, you may continue to engage with our articles. If you do not have an account please register and login to post comments. Users can access their older comments by logging into their accounts on Vuukle.