Mr. Jaikishan Parmar - Sr. Equity Research Analyst, Angel Broking Ltd
"The recent rally led by the Banking sector Q2FY21 Result, key points which favored expansion in valuation are (a) Improvement in collection efficiency, the majority of the banks have reported more than 90% collocation efficiency. (b) Improvement in NIM, led by a contraction in excess liquidity and positive impact of capital raise. (c ) Improvement in asset quality owing to standstill benefit given on asset classification. Another key development investor liked was management commentary for expected restructuring loan for COVID impacted individual and corporate book. Most of the banks inferred that they could see restructure book in the range of 2 to 5 %. However, most of the banks has already taken non-specific provision in the range of 1% to 3% of advance which way above than RBI requirement (10% of restructuring book).
RBI also gave clear direction for restructuring book with the timeline, the disciplined rule will give a more precise picture which removes opaqueness of asset quality that investor was fearing that actual asset issue will be difficult to identify.
We expect restructuring scheme tenure extension and EMI affordability (lower interest rate) will enhance retail and SME borrower paying ability and intention. Hence, looking at Q2FY21 numbers, sufficient non-specific provision and lower expected restructure book will support large private bank's stock prices. We have a positive view on the large private bank due to better earnings and asset-quality visibility. We have a Buy rating on Cholamandalam Investment and IDFC First Bank."