The additional Covid provisioning was despite moratorium book coming down sharply for most private banks.
What's important to understand is that lower moratorium is not necessarily because of clearing of all the dues of the earlier moratorium, and so, it may not fully encapsulate the softening asset quality stress. “We are still of the view that the moratorium ratio provided is not giving a clear insight into building credit cost estimate for any bank,” say analysts at Kotak Institutional Equities, in their Q1 report on HDFC Bank.
Further, there is no standard practice being followed by all banks to classify moratorium book. Thus, lenders’ collection status/efficiency is rather crucial, believe analysts.
On the collection front, however, banks have been prompt. For instance, even before the Covid-19 outbreak, ICICI Bank has been using an artificial intelligence-based pre-delinquency management engine to forecast its bounces.
In an analysts call after results, ICICI Bank said: “It (the pre-delinquency management engine) has been further sharpened with additional markers, such as industries directly impacted and salary uploads, among others. We strengthened our collections team by reorganising teams from sales, credit, operations and customer service... We are using API (application programming interface)-based integrations with large payment channels to ensure timely credit of the overdue amount.”
Meanwhile, with Covid provisioning, private banks witnessed up to 6-7 times jump in total provisioning and contingencies on a year-on-year (YoY) basis, though in many cases, these have declined sequentially.
Lower operational costs and treasury gains restricted the impact of higher provisioning. These 10 banks reported a profit at the net level, even as the profit-before-tax declined up to 116 per cent YoY for most, except HDFC Bank and ICICI Bank, which saw their pre-tax profit rise around 5 per cent 14 per cent, respectively. Both banks got support from higher treasury gains/income of stake sale in subsidiaries.
For most private banks, their net interest income grew over 10 per cent YoY in Q1FY21.
On the loan book front, besides muted loan demand, banks remained risk-averse, leading to a dismal offtake. Although advances were up YoY, aided by lower repayment amid moratorium, the figure was down sequentially for most banks. Philip says: “Though there may be some traction in loan book as the economy unlocks, overall credit offtake is unlikely to be strong, at least for the next few quarters.”
While microfinance business (relatively bigger for players like Bandhan and IndusInd) is expected to see good loan growth, the impact of the increasing spread of coronavirus in rural areas on their loan growth and asset quality is a key monitorable. Bandhan Bank, a microfinance major, however, has made Covid provisioning to the tune of 2.5 per cent of its loan book, the highest among the 10 players being analysed.
The other area, analysts are sceptical of, is the unsecured portfolio of private banks, and how delinquencies pan out. Therefore, management commentary for the September quarter will be crucial.