“Forecasting is difficult in the fourth quarter of FY20 and more so because of the uncertainties of the first quarter next year. It is particularly difficult to measure the impact on NBFCs, which typically have well-matched assets and liabilities and for whom there are problems both in terms of collections as well as in terms of moratorium on borrowings,” mentioned Lalitabh Srivastawa, analyst at Sharekhan, part of the BNP Paribas Group.
So far, solely HDFC Bank has annouced April 18 because the date for outcomes. Other banks and NBFCs grapple with collating information and getting numbers audited in a rare state of affairs.
The cascading impression of the lockdown couldn’t have come at a worse time as total banking credit score progress is close to 58-year lows at 6%. Analysts are predicting demand destruction will doubtless result in a fall in credit score, particularly in segments like retail and SME. Retail focussed personal sector banks like HDFC Bank, ICICI Bank and Axis Bank might face the warmth.
“Our discussions with bankers recommend that playing cards/private mortgage progress has already come-off, whereas a restoration in automobile finance might be delayed, and mortgage progress too might be hit because of the lockdown. Retail personal banks have for lengthy reported sturdy monetary efficiency led by wholesome credit score progress/NIMs and average mortgage loss provision feeding on sturdy consumption, captive clients and higher analytics,” mentioned Emkay Financial Services in a preview.
“However, we imagine that the rising danger of an financial recession within the wake of the Covid-19 outbreak is more likely to pause, if not cease, this cycle. We anticipate personal banks to report a 3% earnings decline in This fall, primarily dragged by Yes/RBL/IndusInd,” the preview added. Emkay has already reduce its fiscal 2021 earnings estimate for personal banks by round 20 to 40%.
Analysts mentioned sectors like auto and ancillaries, logistics, aviation and lodges would be the most severely hit.
“The large companies may still be able to pay, but what happens to the smaller guys? Then there are questions on whether retail borrowers and SMEs will be able to pay the bunched up interest on the moratorium after three months. NBFCs are definitely going to suffer because not all of them will have the resources to repay their debt, and the situation is such that cost of funds will definitely increase,” mentioned Siddharth Purohit, analyst at SMC Global Securities.
Analysts mentioned the extention of the lockdown to the top of the month has most definitely put the primary quarter to jeapordy for each banks and NBFCs. The impression of this is also felt for the entire of the primary half of fiscal 2021.
Some banks, like IndusInd and RBL, are additionally dealing with strain on the liabilities aspect as a consequence of a flight of deposits in March. The asset aspect challenges will compound their issues.
“Among banks, we selectively choose banks with wholesome capital place, retail legal responsibility franchise and affordable core earnings to soak up asset high quality shocks (ICICI, HDFC Bank, SBI and City Union Bank). Within NBFCs, we choose housing finance firms over asset finance firms as a consequence of long-tenor asset maturity, secured publicity and decrease dependence on money/bodily collections,” Emkay mentioned
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