Sector Update - Banking and Financial Services - October 2020 - ICICI Securities

In Q1FY21, unlocking of the economy and improvement in repayment trend amid reducing moratorium book remained positive for the banking sector. Prudent restructuring norms announced by the RBI with inclusion of retail loans added strength to effort in faster economic revival. However, uncertainty looming around the extent of moratorium and anticipation of elevated credit cost keeping earning muted acted as deterrents.

Post de-growth in initial months amid pandemic, life insurance has seen healthy revival with new business accretion at ~12% YoY in August 2020. Such revival is due to robust traction in group single premium across players. Higher awareness amid Covid bodes well for term insurance demand offsetting credit life business slowdown. Low interest rates lead to some volatility in guaranteed products. With premium accretion seen continuing to improve in H2FY21E, we expect premium at 8-10% YoY in FY21E.

Given uncertainty on restructuring, we expect the stock price of lenders (banks, NBFCs) to remain volatile in the near term. However, we continue to expect positive impact of structural changes undertaken in the long run. Decline in moratoriums and unlocking is seen enabling normalisation leading to gradual revival in business momentum. Restructuring is seen at 6-8% of advances with private banks relatively better at 2-5%. NBFCs, HFCs are expected to restructure around <10% of book. Near term bank earnings may stay muted led by elevated credit cost. Prefer large private banks like HDFC Bank, Kotak Bank and non-lenders like MCX, SBI Life for investments.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Banking_SectorReport_Oct20.pdf

Source : Equity Bulls

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