Tag: Motilal Oswal Securities

Banks set for a sharp earnings rise in Q2, may face asset quality jitters, BFSI News, ET BFSI

Banking & Finance

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Indian banks’ earnings are likely to pick up in the September quarter, led by a recovery in business growth, fee income and a gradual reduction in credit costs.

However, they may be tempered by higher provisioning in the retail and small and medium enterprises (SME) loan segments that have seen higher delinquencies.

Earnings growth

Private banks are likely to report PPoP growth of 9% YoY (3.8% QoQ) and net profit growth of 14% YoY (17.3% QoQ). Earnings are likely to pick up, led by recovery in business growth / fee income and a gradual reduction in credit costs.

“Loan growth would pick up, led by revival in economic activity and the opening up of the economy. Demand going into the festive season and commentary around the FY22 outlook would be key monitorables. Retail and SME segment is likely to show strong recovery; though growth in the Corporate segment is likely to remain soft and recovery within this segment would be another monitorable,” according to Motilal Oswal Securities.

Banks are likely to report earnings growth of 41% in the fiscal year 2021-22, it said.

PSBs to report improved operating performance, supported by modest business growth and a gradual reduction in provisions. Opex is likely to remain elevated on account of the revised guidelines on pension provisions.

SBI NPAs may decline

As per analyst estimates, State Bank of India could post a further decline in bad loans and could see a moderation in credit costs. Private lender ICICI Bank appears firmly placed to deliver healthy sustainable growth, led by its focus on core operating performance. It may utilise higher buffers in case of a possible asset quality impact.

Exchange filings have shown HDFC Bank has posted strong credit growth in the September quarter and after the embargo being lifted on sanctioning credit cards, the bank is poised for a healthy revival in retail loans.

Estimates suggest that ICICI Bank could deliver 16.6% year-on-year loan growth, while Axis Bank and Kotak Mahindra Bank could grow over 9% each.

For state-run banks, operating expense is likely to remain elevated on account of the revised guidelines on pension provisions.

Asset quality

Asset quality could pose challenges with near-term slippages expected in the retail, SME and microfinance segments. Though analysts said there could be a decline over the June quarter.

Slippages would remain elevated, led by the Retail and SME segment; however, the quantum is likely to moderate, keeping asset quality in check – barring mid-sized banks, which could see marginal deterioration. Corporate slippages could see an uptick due to the downgrade of SREI Infra which is likely to get offset by the recoveries from DHFL resolution



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Bandhan Bank collections drop in April,asset quality pressure worsens, BFSI News, ET BFSI

Banking & Finance

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The end of Assam and West Bengal polls was expected to end Bandhan Bank worries, but a rise in Covid infections and hike in bad loan provisionings has cast a shadow.

The lender derives a major chunk of its business from the two states.

Collection trends improved to 98% in Mar’21, but declined 3–4% in Apr’21 due to the advent of the second Covid wave, though the drop in collections in West Bengal was less than 3%. Nearly 78% of customers were able to pay some instalments in March 2021 among the NPAs in the MFI portfolio.

The results

The bank missed the fourth-quarter profit estimates by a wide shot due to a jump in bad loans and high provisioning.

It reported an 80% dip in its March quarter net profit at Rs 103 crore, as it wrote off a huge portfolio of loans worth Rs 1,929 crore in the flagship microlending business by recognising stress upfront.

As a result of the accelerated write-off, the bank’s overall provisions shot up to Rs 1,594 crore in the reporting quarter from the year-ago period’s Rs 827 crore. It also made an additional provision of Rs 388 crore on standard advances in the microfinance segment.

Bandhan Bank reported a weak quarter, with net earnings sharply trailing estimates, affected by higher interest reversals of Rs 540 crore. Thus, net interest margins declined 150 bp quarter on quarter while elevated provisions of Rs 1,590 crore further impacted earnings. Total Covid-led provisions for FY21 comprise Rs 1930 crore toward write-offs and another Rs 2,900 crore toward loan loss provisions.

Bad loans

The GNPA ratio improved despite elevated slippages, primarily on account of higher write-offs during the quarter. However, Provision Coverage Ratio fell sharply to 50% (v/s 67% proforma in 3QFY21).

Total loans restructured stood at Rs 620 crore, predominantly in the Housing Finance portfolio, while ‘Nil’ restructuring was seen in the MFI portfolio.

On the business front, AUM grew 8% QoQ, led by strong disbursements in the MFI portfolio. Liability traction was robust at 37% YoY, with the CASA ratio improving 50 bps QoQ.

Management hopeful

Bandhan Bank MD & CEO Chandra Shekhar Ghosh is hopeful that the economy will rebound by the third and fourth quarters of the current fiscal, enabling the lender to meet its targets.

He said the bank had exercised caution amid the COVID-19 pandemic and made additional provisioning in the last quarter of 2020-21.

“We remain cautiously optimistic for the current fiscal as we have made additional provisioning as safeguard. The second wave of Covid pain is expected to subside in the next two-three months, and this time people are better geared than the first wave that took everyone by surprise.

“The worst seems to be over, and the economy will rebound by the time major lending business happens in Q3 and Q4, to meet our targets,” Ghosh said.

Overall, we expect asset quality trends to remain under pressure; thus, we estimate credit cost at 4.0% of loans for FY22, Motilal Oswal Securities said.



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Bajaj Finance posts a stellar Q4, but Covid shadow looms, BFSI News, ET BFSI

Banking & Finance

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Bajaj Finance Ltd today posted a 30.2% on-year rise in its net profit for Jan-Mar to Rs 1,161 crore as it inched closer to pre-pandemic levels.

New loans booked during Q4 FY21 fell to 54.7 lakh (5.47 million) as against 60.3 lakh (6.03 million) in the same quarter a year ago, which shows that the consumer lending business is yet to pick up full steam.

Net interest income during the quarter dipped 1 per cent to Rs 4,659 crore from Rs 4,684 crore in Q4 FY20, it said.

Total income fell by 5 per cent to Rs 6,855 crore from Rs 7,231 crore earlier.

“4QFY21 was a healthy quarter for Bajaj Finance. Disbursements have exceeded 90% of YoY levels across most segments. The initial asset quality performance of incremental disbursements is in line with or marginally better than pre-Covid levels. This bodes well for asset quality in the medium term. In the near term, we do not foresee any major asset quality disruption, unless the impact of the second wave is worse than expected,” Motilal Oswal Securities wrote in a note, while upgrading the stock to ‘Buy’.

Assets under management

On a consolidated basis, the company’s assets under management as of March 31, 2021, increased by 4 per cent to Rs 1.52 lakh crore as against Rs 1.47 lakh crore. However, this growth came mainly due to a 19% jump in mortgages of subsidiary Bajaj Housing Finance.

However, the company said that despite the Covid disruptions, it would be able to grow back to pre-pandemic levels.

In the last 7–10 days, the company has continued to originate 50–55% of daily volumes in the B2B business, 80–85% in the B2C and SME businesses, and 40–50% in Mortgages. However, the company has said that barring a national lockdown, three-four large GDP-contributing states going into simultaneous lockdown for three-five weeks and another moratorium on loan repayment, it is confident of delivering its long-term guidance metrics in FY22.

Despite significant disruptions, Bajaj Finance remains open for business across geographies, in line with local administration advisories.

New loan originations, barring auto finance, are back at pre-Covid levels. The wallet loans business (paused) and retail EMI business have moderated and is doing 50K/month instead of a 150K/month run-rate.

Non-performing assets

The gross and net non-performing assets (NPAs) stood at 1.79 per cent and 0.75 per cent respectively by end of March 2021, as against 1.61 per cent and 0.65 per cent earlier.

The company has a provisioning coverage ratio of 58 per cent on stage 3 assets (NPAs) and 181 basis points on stage 1 and 2 assets as of March 31, 2021.

“Loan losses and provisions for FY21 was Rs 5,969 crore as against Rs 3,929 crore in FY20. During the year, the company has done accelerated write-offs of Rs 3,500 crore of principal outstanding on account of Covid-19 related stress and advancement of its write off policy.

“The company holds a management overlay and macro provision of Rs 840 crore as of March 31, 2021,” it added.

Bajaj Finance said its board of directors has recommended a dividend of Rs 10 per equity share for FY21.

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