Last week, the global rating agency S&P Global Ratings downgraded ratings of some Indian banks as it believe lenders face increasing risks, stemming from challenging operating conditions following the COVID-19 pandemic. The rating agency expects a flattish U-shape economic recovery. The risks remain on the downside and could lead to few banks being downgraded.
“We expect Indian banks' asset quality to deteriorate, credit costs to rise, and profitability to decline. We have revised the economic risk trend for the banking system to negative from stable. Other banking industry scores are not affected,” S&P Global Ratings said on April 17.
While Indian banks are not entering this slowdown from a position of strength, they have been on the recovery path for the past 12-18 months. The economic slowdown will defer the improvement by a year, in our opinion, it added.
Meanwhile, the brokerage firm Axis Capital expects RBL Bank
to report 71.5 per cent year-on-year (YoY) drop in net profit at Rs 70.5 crore, due to higher provisioning in January-March quarter (Q4FY20). Net interest income is expected to grow 42.8 per cent at Rs 937 crore on YoY basis.
“RBL Bank’s cards business and micro-finance institution (MFI) business impacted only towards the end of the quarter, limited business impact in Q4. Expect more non-performing loans (NPL) recognition and provisioning likely as guided,” the brokerage firm said in BFSI sector update.
“A key challenge that emerged towards the end of the quarter was withdrawal of government deposits from few banks, mainly RBL and IIB. Even non-banking finance companies or NBFCs have again started to face liquidity challenges. The Reserve Bank of India (RBI) has stepped in and infused additional liquidity in the system, but an uncertain liquidity environment will reflect in slower growth for smaller banks/ NBFCs and faster market share gain for larger banks,” the brokerage firm said.
“The bank’s slippages could be moderate quarter-on-quarter, with residual stress pool only at Rs 300 crore. However, slower business growth and higher loan loss provisions or LLP as guided by the bank could keep earnings under pressure,” Emkay Global Financial Services said in a sector update.
At 11:25 am, RBL Bank
was trading 2 per cent lower at Rs 107 on the BSE, against 1.4 per cent rise in the S&P BSE Sensex. A combined 19.4 million shares changed hands on the counter on the NSE and BSE.