Mumbai Analysts said banks are expected to report a pick-up in business growth in the December quarter along with an improvement in collections and asset quality. He believes management’s comments and data on government-guaranteed loans and restructured loans will be important things to watch. That said, the emergence of the new coronavirus pandemic and an alarming rise in infections could make it difficult for lenders to keep pace in the March quarter.
“We expect large banks like HDFC Bank, ICICI Bank, Axis Bank among private banks and State Bank of India among public sector banks to report further improvement in business performance- outlook on operations and business. However, we should see better performance on asset quality for most of the mid-tier banks like IndusInd Bank, Yes Bank; small banks like DCB Bank; and most regional banks and small finance banks,” analysts at Kotak Institutional Equities said in a note dated January 5.
The brokerage said it would look at the quarter from three different perspectives: asset quality, credit growth and net interest margin (NIM). A major factor driving asset quality improvement in the December quarter is the lack of any large corporate debt account non-performing. Improvement in collection is also expected to protect the quality of the asset.
“Since June 2021, lenders have seen month-on-month improvement and normalization of collection efficiency. Till December, across several product segments, collection efficiency was much better than March levels and at least similar, if not better, to the pre-Covid average. “Recoveries and collections are likely to maintain momentum in Q3FY22 as well,” ICICI Securities said in a note on January 7.
However, it recognizes that the Emergency Credit Line Guarantee Scheme (ECLGS) lending pool and the performance of the restructured portfolio will be critical to assess whether it will increase credit costs and delinquency. ICICI Securities said interactions with market participants suggested that the delinquency in the ECLGS pool would be similar to the normalized slippage level in the small business segment.
Launched in May 2020, ECLGS offers 100% guaranteed coverage to select borrowers, and was originally designed for small business borrowers who have total fund-based credit outstanding. 25 crores, now it also includes other segments.
In terms of credit growth, private banks have disclosed in the quarterly business update that their loan book has expanded between 3-8% on a sequential basis. “In addition, the growth was led by retail and commercial banking. “Retail growth has lagged behind players with a relatively high stake in microfinance or commercial vehicle and a conservative stance on unsecured personal or business loans,” said ICICI Securities.
Experts cautioned that the March quarter would be challenging for asset quality given the pace of the third Covid-19 wave. This, he said, will test the resilience of borrowers who had availed the first round of loans and were expected to start repayment after the moratorium ends in the next three to six months.
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