'Banks, NBFCs to witness increased polarisation,' says HDFC Securities. Here are the top picks1 min read . Updated: 11 Oct 2020, 01:58 PM IST
HDFC Securities expect banks/NBFCs within their coverage to report credit growth of 7.3/5.8% YoY vs. 8.2/7.1% in 1QFY21.
Despite an uptick in real economic activity and fresh disbursals, there has been a slower year-on-year credit growth. "Disclosures by select lenders and trends in non-food credit growth suggest this too. We expect banks/NBFCs with our coverage to report credit growth of 7.3/5.8% YoY vs. 8.2/7.1% in 1QFY21," says a report by HDFC Securities. The broker's report on banks and NBFCs state that the deposit growth is likely to have exceeded credit growth for their coverage banks, and they expect large private banks to have fared particularly well on this front. HDFC Securities expect the space to witness increased polarisation in the space. "Consequently, larger banks with sufficient capital, strong granular liability franchises, and a good asset quality track record are expected to emerge stronger," says the report by HDFC Securities.
ICICI Bank (SoTP of ₹496), Axis Bank (SoTP of ₹619), and City Union Bank (TP of ₹196) are HDFC Securities top picks among the banks. CIFC (TP of ₹289) is their top pick in the NBFC space.
The report mentions that asset quality metrics are likely to have remained stable across lenders (1) as delinquent accounts emerging from the moratorium are unlikely to have crossed ninety days past due, and (2) in light of the recent Supreme Court order preventing lenders from classifying borrowers as NPAs (subject to the final verdict).
However, lenders are likely to continue to shore up provisions.
"We will watch for: (1) disbursals under the NCGTC scheme, (2) collection efficiency trends and early bucket delinquencies, (3) bank level commentary on the utilisation of the COVID-19 related stress resolution framework, (4) additional provisions related to COVID-19, and (5) judicial outcomes related to the classification of accounts as NPA and the levy of interest on interest in case of accounts under moratorium," says HDFC Sceurities.