According to Motilal Oswal Securities, the SC verdict on AGR liabilities will further impact banks’ asset quality and could drive an uptick in credit cost over FY21, especially at a time when Vodafone Idea (Voda-Idea) faces an imminent shutdown. “In comparison to peers, State Bank of India (SBI) has better ability to provide for this stressed telecom company owing to its higher recovery potential from other stressed accounts/divestment in cards business,” said Gautam Duggad, head of institutional research at Motilal Oswal.
Those at Emkay Global also share a similar view. The recent SC rebuke on recovery of AGR dues for telecom players, they believe, has already raised the risk of default (without government support) from Voda-Idea for select banks like SBI, IndusInd Bank, YES Bank, ICICI Bank, Axis Bank, PNB among others.
Meanwhile, resolution of corporate insolvency cases under the Insolvency and Bankruptcy Code (IBC) remains a work-in-progress and is yet to demonstrate signs of speedier resolution or high recoveries, as indicated by the Q3FY20 publication by IBBI (Insolvency and Bankruptcy Board of India), analysts at SBICAP Securities said in BFSI sector update.
“Corporate resolution pipeline via NCLT/non-NCLT, too, is on the rise including key cases like Rattan India Nashik, Jindal Thermal, RKM Power, Essar Transmission, India Power Haldia, Jal Power, Jhabua Power, Ind Barath Utkal, KSK Mahanadi, GMR Kamalanga, etc. Banks hope that many of these exposures will be resolved over next two quarters including Bhushan Power, leading to continued lower NPAs going forward,” wrote analysts at Emkay Global in a recent note.
In this backdrop, analysts recommend investors stick with relatively higher retail orientation, healthy capital ratios and likely beneficiary of accelerating corporate resolutions.
“The market reaction to the developments is overdone. There is too much pessimism around. Banks, especially state-owned, have made adequate provisions and the debt / NPA resolution will take time. Investors need to understand this. For those who can stay put for the next two years, this is a good time to buy and hold PSU banks,” advises G Chokkalingam, founder and managing director at Equinomics Research.