Several Banks Introduced COVID19-Related Provisions In Q4 FY2020: HDFC Securities

Mumbai: The additional disclosures and management commentary by banks have provided an interesting perspective of the on-ground situation and potential impact of COVID-19 on the banking sector notes HDFC Securities in the Banking Sector Update report. Some of the key takes away was that the borrowers representing ~25-71 per cent of loans (which have declared results till 14-May-20) have availed moratorium as per the RBI’s 27-Mar-20 circular. Further several banks made provisions, in addition to the RBI mandated provisions, based on their assessment of the potential impact of COVID-19.

The brokerage says that many banks also have hinted at measures to bring down the costs in FY21 estimates and has halt/slow the branch expansion plans. On the moratorium front, the additional clarity would be seen in Q1 FY2021 estimate and that on anticipated asset quality outcomes will emerge post easing of the lockdown measures. Also, as per the key finding several borrowers are opting for moratorium has a sufficient account balances or undrawn lines that indicates that the borrowers want to be more liquid at a cost, of course.  

The firm on the basis of the commentary by the management has increased their provision estimates for most of the banks under their coverage in this quarter. “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 ICICI bank and Axis Bank amongst the larger banks and City Union Bank amongst the smaller banks,” says Darpin Shah, Institutional Research Analyst, HDFC Securities.