BackPSU, small private banks to gain more from MSME relief package: Brokerages
Private banks have had better underwriting for MSMEs, NBFCs and their bad loans are less than a third of PSU banksBoost to MSMEs will end up benefiting banks with stronger balance sheets--Kotak Bank, HDFC Bank and ICICI Bank
PremiumThe government has announced a slew of measures to ease liquidity burden and improve risk appetite with credit guarantees for micro, small and medium enterprises (MSMEs) and non-banking financial companies (NBFCs). Analysts said without these, the liquidity problem could have snowballed into a credit issue. Even as the government had earlier announced liquidity measures, lenders remained wary of exposure to the segment fearing credit risk. Now the new measures may encourage banks to lend.
Motilal Oswal Financial Services Ltd believes that the benefit will be more for state-owned banks as their non-performing asset (NPA) formation in this segment are higher and they will now be able to tide over the situation by providing adequate liquidity to borrowers. Private banks have displayed better underwriting in this segment and their bad loans are less than a third of PSU banks. Mid-tier private banks stand to benefit more, it added.
“NBFCs that are most likely to be positively impacted are Shriram City Union Finance, Cholamandalam Investment and Finance Company and Repco Home Finance. We maintain our preference toward large private banking franchises with robust liability mix and diversified asset base," Motilal Oswal said.
According to Edelweiss Securities Ltd, policy succour for the SME segment will end up benefiting banks with stronger balance sheets, Kotak Mahindra Bank Ltd, HDFC Bank Ltd and ICICI Bank Ltd, by 3-4% in terms of the consequent impact on 'true equity'.
“Given Axis Bank's slim (200-250 basis point) edge over the preferred three on marginal impact and IndusInd Bank Ltd actually being less sensitive, risk-on strategy shifts in terms of larger banking stock selection seems unwarranted. Our large bank preferences, therefore, stay unchanged," said Edelweiss Securities.
It added that MSMEs constitute the largest part of the likely problems of those balance sheets where the least aggregate issues may occur, for example Kotak Mahindra Bank.
The brokerage firm said that the defining segment of the current crisis is going to be SME/MSME/business banking, given the dissonance between long-term asset quality experience and the evolving asset quality situation. Without a government relief package, moderate financial leverage, high operating leverage and frozen receivables would have ensured there could have been a mass extinction in mid-sized Indian businesses, it added.
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