According to the FSR, almost half the system’s (NBFCs and banks) loans had availed the moratorium as of April 2020. Though the recent moratorium data, after June 2020 quarter results, from banks and NBFCs shows easing of the moratorium book, it offers little comfort.
Mona Khetan, analyst at Dolat Capital, said: “Lower moratorium does not necessarily mean banks’ or lenders’ portfolio stress has come down to some extent.” In fact, according to Kotak Institutional Equity, “It would be imperative to highlight that the definition of loans under moratorium is non-standardised across the industry.” This further supports the point of lack of clarity of asset quality stress.
Stress is expected to be higher from sectors, such as tourism and hospitality, construction, and real estate — the three sectors identified as the worst-hit by the pandemic.
Notably, 60-65 per cent of loans to MSMEs struggling under the current situation were under the moratorium, as of April 2020. However, Khetan said: “Though specific sectoral concentrations (MSME, commercial vehicles, real estate) would impact asset quality, underlying risk management practices would hold a higher relevance in tiding through the current situation.” Thus, FY21 would show the robustness of the risk management system.
Agrawal said while there are near-term challenges, “we believe banks have satisfactory solvency position”. Some experts see a pick-up in credit growth. According to Dhananjay Sinha, director and head of institutional research at Systematix group, “Some indicators, such as currency holding, rising power consumption, and government spending do suggest that credit growth will pick up hereon.”
Investors have been advised to stick to quality and top names. Some experts hinted that from a medium-term perspective, some banks are available with attractive valuations. HDFC Bank and ICICI Bank are some analysts’ top picks in the banking space.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.