Mutual Funds Commodities Research Tax Planning IPO Our Team Contact Us    

| More

Mid-Year FY19 Bank Outlook: Stress in Non-Corporate Segments - India Ratings and Research

Posted On: 2018-09-19 06:53:43

Brief Summary about the FY19 Outlook on Banking Sector -

India Ratings and Research (Ind-Ra) has maintained a stable outlook on private sector banks and two large public sector banks (PSBs) namely State Bank of India ('IND AAA'/Stable) and Bank of Baroda ('IND AAA'/Stable) and a negative outlook for the remaining PSBs. The agency expects the stronger banks to gain market share from most of the PSBs that are facing multiple challenges including capital and operating buffers. The agency expects credit costs trajectory to start trending downward, although remain elevated, through FY19-FY20.

Ind-Ra observed an increase in the share of smaller corporates, and small and medium-sized enterprises and personal/retail loans in the special mention account (SMA) pool in FY18 over FY17. As per Ind-Ra's estimates, the exposure of PSBs to accounts under SMA1 (FY18: about 2.5% of net advances) increased about 10% yoy in FY18; while for accounts under SMA2 (about 1.5% of net advances) decreased about 22% yoy. However, the share of SMA1 of less than INR50 million increased to 40% in FY18 (FY17: 29%) and SMA2 to 68% (12%). Ind-Ra expects material credit costs from these segments over 4QFY19-FY20.

During FY16-FY18, the stressed corporate assets (interest coverage ratio < 1.5x) remained in the range of 20%-21% of the total bank credit. Recognition in some form has increased mainly due to the Reserve Bank of India's proactive stance starting with the first asset quality review in FY16. Of the INR4.5 trillion assets identified for resolution (referred to as National Company Law Tribunal list 1 and list 2), Ind-Ra expects companies with operating assets to warrant lower haircuts by the banks (60%-70% on a blended basis), while exposures on contractors may attract heavy haircuts (upwards of 75%). Of the two lists, INR0.8 trillion from list 1 has been resolved (winning bidders have been either taken-over or identified) until 1QFY19.

According to Ind-Ra's report on Rising Headwinds for Credit Availability & Cost, the prevailing stressed financial conditions could intensify credit tightening that could impact INR3 trillion-4 trillion exposures. This may provide large non-banking financial companies and private banks an opportunity to expand their share with some of these accounts and risk in terms of liquidity, given the capital conservation by the PSBs, especially those under prompt corrective action.

Corporate bond issuances increased to INR27.5 trillion in FY18 (FY16: INR20.2 trillion) mainly on account of benign interest rates and availability of supply from mutual funds. In a tightening interest rate scenario, Ind-Ra expects some of this growth to accrue towards the corporate bank loan segment (particularly highly rated corporates). Even in the corporate segment, the agency expect some shift in the loan book to well capitalised banks from weaker banks during FY19.

Ind-Ra expect the banks will continue witnessing credit costs of 2%-3% in FY19-FY20, given aging of non-performing assets, accelerated provisioning and slippages especially from non-corporate accounts. In Ind-Ra's assessment, the need to provide for Stage 2 and Stage 3 assets under Ind-AS (if implemented from FY20 onwards) has also decreased on account of provisions in the regular course of business.

Source: Equity Bulls

Click here to send ur comments or to

Disclaimer:The article above is a gist / extract of the original report prepared by the research firm / brokerage firm. This article is not to be considered as an offer to sell or a solicitation to buy any securities. This article is meant for general information only., its employees or owners or the research firms, its employees or owners won't be responsible for any liability that may arise from information, errors or omissions in these articles. or its employees or owners / the research firms or its employees or clients or owners may from time to time hold positions in securities referred in this article. For detailed research reports, please contact the concerned research firm directly.

Other Headlines:

Auto Industry Volume Update: September 2018 - Kotak

Sector Update - Natural Gas - Kotak

Company Visit Note: Jindal Stainless Ltd - NOT RATED - Kotak

Company Update: Bajaj Electricals Ltd - ACCUMULATE - TP Rs.545 - Kotak

Telecom: 2QFY19 preview - no respite - Kotak

Sector Update: Natural Gas - Kotak

Company Update: NBCC (India) Ltd - BUY - TP Rs.95 - Kotak

Sector Update: Paper Industry - Kotak

Management Meet Update: Maharashtra Seamless Ltd - BUY - TP Rs.805 - Kotak

View on proposed banks merger

Company Update: GHCL - BUY - TP Rs.330 - Kotak

Company Update: MIRC Electronics Ltd - BUY - TP Rs.32 - Kotak

Company Visit Note: Finolex Industries Ltd - ACCUMULATE - TP Rs.671 - Kotak

Company Update: NMDC Ltd - BUY - TP Rs.125 - Kotak

Company Update: Allcargo Logistics Ltd - BUY - TP Rs.145 - Kotak

Company Update: Hindustan Zinc Ltd - ACCUMULATE - TP Rs.300

Buyback Offer: Larsen & Toubro Ltd - BUY - Buyback Price Rs.1500

Result Update: Vascon Engineers Ltd - BUY - TP Rs.48 - Kotak

Result Update: Voltamp Ltd - BUY - TP Rs.1320 - Kotak

Result Update: Bodal Chemicals Ltd - REDUCE - TP Rs.130 - Kotak

Result Update: MIRC Electronics Ltd - ACCUMULATE - TP Rs.32 - Kotak

Result Update: Shankara Building Products Ltd - BUY - TP Rs.2017 - Kotak

Result Update: Dilip Buildcon Ltd - BUY - TP Rs.1276 - Kotak

Result Update: Zensar Technologies Ltd - ACCUMULATE - TP Rs.1373 - Kotak

Result Update: The India Cements Ltd - REDUCE - TP Rs.112 - Kotak

Result Update: Nagarjuna Construction Co Ltd - BUY - TP Rs.151 - Kotak

Result Update: Berger Paints Ltd - SELL - TP Rs.305 - Kotak

Result Update: Allcargo Logistics Ltd - BUY - TP Rs.145 - Kotak

Result Update: Aksharchem (India) Ltd - REDUCE - TP Rs.533 - Kotak

Result Update: AIA Engineering Ltd - SELL - TP Rs.1700 - Kotak

Result Update: Cummins India Ltd - BUY - TP Rs.785 - Kotak

Result Update: Dollar Industries Ltd - BUY - TP Rs.427 - Kotak

Result Update: KNR Constructions Ltd - BUY - TP Rs.283 - Kotak

Result Update: Finolex Industries Ltd - ACCUMULATE - TP Rs.671 - Kotak

Result Update: MOIL Ltd - BUY - TP Rs.260 - Kotak

Result Update: VRL Logistics Ltd - BUY - TP Rs.395 - Kotak

Result Update: Voltas Ltd - ACCUMULATE - TP Rs.658 - Kotak

Result Update: Va Tech Wabag Ltd - BUY - TP Rs.476 - Kotak

Result Update: Mahindra Holiday Resorts India Ltd - BUY - TP Rs.390 - Kotak

Result Update: Sterling Tools Ltd - ACCUMULATE - TP Rs.418 - Kotak

Result Update: MRPL - BUY - TP Rs.106 - Kotak

Result Update: Indraprastha Gas Ltd - SELL - TP Rs.257 - Kotak

Result Update: Engineers India Ltd - BUY - TP Rs.187 - Kotak

Initiating Coverage: Amber Enterprises - BUY - TP Rs.1145 - Kotak

Karia Can Company Ltd Q1FY19 net profit slips to Rs. 1.88 crore

Result Update: Bajaj Electricals Ltd - SELL - TP Rs.545 - Kotak

Result Update: Gabriel India Ltd - BUY - TP Rs.185 - Kotak

Result Update: Blue Star Ltd - ACCUMULATE - TP Rs.743 - Kotak

Result Update: The Phoenix Mills Ltd - ACCUMULATE - TP Rs.707 - Kotak

Result Update: NMDC Ltd - BUY - TP Rs.125 - Kotak

Website Created & Maintained by : Chennai Scripts
West Mambalam, Chennai - 600 033,
Tamil Nadu, India

disclaimer copyright © 2005 - 2018