Covid-19 4QFY20: What have banks said
Additional disclosures and management commentary provide an interesting (and varying) perspective of the on-ground situation and potential impact of COVID-19 on the sector. Key takes from additional disclosures and commentary include- (1) borrowers representing ~25-71% of loans (which have declared results till 14-May-20) have availed moratorium as per the RBI’s 27- Mar-20 circular, (2) several banks made provisions, in addition to the RBI mandated provisions, based on their assessment of the potential impact of COVID-19, but the relative quantum varied vastly, (3) most banks shored up their PCR (partly optical due to the standstill classification benefit), and (4) many hinted at measures to bring down costs in FY21E and halt/ slow branch expansion plans.
Additional clarity on the moratorium front will emerge in 1QFY21E and that on anticipated asset quality outcomes will emerge when lockdown measures ease. We've increased our provision estimates for most of our coverage banks this qtr. Our existing thesis on the sector remains as is. Banks, with strong granular liability franchises, reasonable asset quality performance, lesser exposure to vulnerable segments and sufficient capital are likely to emerge stronger. We prefer ICICIBC and AXSB amongst the larger banks and CUBK amongst the smaller banks.
Moratorium: Most banks disclosed the proportion of book under moratorium. This number varied vastly across banks (AUBANK-25%, BANDHAN-71%) and appears to have some correlation with book composition. The following trends stand out here:
* Banks are offering moratorium to retail customers on a blanket ‘opt-out’ basis and to wholesale customers on case to case ‘opt-in’ basis.
* Even within retail segments, higher instances of moratorium utilisation were observed in agri loans, micro-credit, CV loans and other unsecured retail products like credit cards.
* For most banks, a higher proportion of the retail book appears to be under moratorium.
* Several borrowers opting for moratorium had sufficient a/c balances or undrawn lines indicating that borrowers want to be more liquid (at a cost, of course).
* Several banks provided moratorium details as at 30-Apr-20, but indicated that more customers continued to opt for the moratorium in May-20 too.
* One bank said that there have been instances of eligible borrowers requesting moratorium retrospectively (i.e. asking for refund of payments dr. to their a/cs).
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