Published on 25/05/2020 12:03:36 PM | Source: ICICI Securities Ltd

Banks and Financial Services Sector Update by ICICI Securities

Posted in Broking Firm Views - Sector Report| #Banking Sector #Sector Report #ICICI Securities

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Cyclone Amphan – Accentuates disruption in East India

When the country is already grappling with Covid-19 pandemic, Cyclone Amphan hitting Eastern India has only accentuated the disruption in affected areas. However, positively, minimal economic activity amidst lockdown, proactive evacuation efforts and weakening cyclone effect when it hit the land would aid somewhat in scaling down the magnitude of adversities. At this juncture, for an analysis of cyclone impact on financial companies, we have looked into statewise, district-wise and player-wise exposure in these regions. West Bengal (4.4%) and Odisha (1.9%) put together accounts for 6.3% of systemwide credit. Delving deeper into adversely impacted locations suggest that proportion of credit to the impacted districts stands at 76% (ex-Kolkata it is 20%) of state credit for West Bengal and 11% for Odisha. Given the difficulty in ascertaining with certainty, specific player-wise impact (in absence of district-wise share for banks), for the moment, we would just want to leave on table their overall exposure to these two states. As a proportion of overall book, Bandhan (>30%, management clarified only ~0.5% of total portfolio has been impacted due to cyclone) and RBL (~10%) have relatively higher exposure to West Bengal, and DCB (5%) and SBI (3%) to Odisha. Amongst MFIs, Ujjivan has ~16.4% (West Bengal 13.8%, Odisha 2.6%) and Spandana ~18.5% (West Bengal 0.6%, Odisha 17.9%) exposure to these states.


* Eight districts in West Bengal and six in Odisha have been severely impacted. News about movement of cyclone suggests 6-8 districts of West Bengal including North and South 24 Parganas, Howrah, Kolkata, West Midnapore, East Midnapore, even Puruli Bankura, have been affected by cyclone Amphan. These districts accounts for >75% of state-wise credit, with highest being Kolkata at >55%, followed by North and South 24 Parganas at 12%. As far as Odisha is concerned, the districts severely impacted are: Jagatsinghpur, Bhadrak, Balasore, Jhajpur, Mayurbhanj and Kendrapara, representing ~11% of the state’s outstanding credit.


* Lending profile in the two states. In West Bengal, of the overall credit of Rs4.96trn, exposure to MSME is 17%, agri 11% and housing ~10%. SBI’s share being lower than its pan-India average at 14% leads to overall PSU banks’ share at 55%. However, private banks constitute 30% credit in West Bengal. Similarly for Odisha, of the overall credit of Rs1.97trn, exposure to MSME is 22%, agri 28% and housing ~7%. The share of PSU banks is relatively higher with private banks as a segment not being very active in Odisha.


* Player-wise assessment of lending to these states: Communication with players suggests it is difficult to gauge the impact with certainty at this juncture. In absence of district-wise exposure for banks, we are just looking at their overall exposure to these states to understand the impact on individual names. Bandhan (>30%) and RBL (~10%) have relatively higher exposure to West Bengal, and DCB (5%) and SBI (3%) to Odisha. Amongst MFIs, Ujjivan has ~16.4% (WB 13.8%, Odisha 2.6%) and Spandana ~18.5% (WB 0.6%, Odisha 17.9%) exposure to these states.


Clarification from Bandhan Bank:

* Business of around 65k MFI borrowing equivalent to exposure of Rs2.6bn has been impacted due to the cyclone (majorly in South 24 Parganas). From the experience during Fani cyclone in Odisha, Bandhan Bank expects the Amphan affected portfolio to regularise by Q3FY21.

* As per the initial assessment, 49 banking units (micro banking outlets) in five districts were impacted, of which 45 have resumed operations today. Four outlets that could not continue services due to issues in accessibility will resume shortly.


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