In terms of stress assessment, too, SBI fares a tad better than Axis Bank, with 17 per cent of its loan book categorised as stressed (exposure to MSME and BB-rated corporate book). The number, however, stands at 18 per cent for Axis Bank.
Quantified at 5.4 per cent of the total banking credit, lending to MSMEs had been an important source of credit growth for banks, until early 2020. “If no policy aid was provided, then the moderate financial leverage, high operating leverage (from an operational standstill), and frozen receivables would have all ensured a mass extinction event (with over 20 per cent of defaults) in mid-sized Indian businesses,” say analysts at Edelweiss.
Even though analysts remain confident, investors should await clarity on asset quality. Thursday’s announcement on agri loan subventions could once again have a negative impact on credit behaviour of customers, putting further stress on SBI’s agri portfolio.
The March quarter results, due in a few days, along with management commentary, will be critical to judge banks’ asset quality trajectory.
Until then, UBS’ view of national service risk (interest holidays and bailouts) rising for the sector in general and SBI in particular, may hold true.