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“Forecasting is difficult in the fourth quarter of FY20 and more so because of the uncertainties of the first quarter next year. It is particularly difficult to measure the impact on NBFCs, which typically have well-matched assets and liabilities and for whom there are problems both in terms of collections as well as in terms of moratorium on borrowings,” said Lalitabh Srivastawa, analyst at Sharekhan, a part of the BNP Paribas Group.
So far, only HDFC Bank has annouced April 18 as the date for results. Other banks and NBFCs grapple with collating data and getting numbers audited in an extraordinary situation.
The cascading impact of the lockdown could not have come at a worse time as overall banking credit growth is near 58-year lows at 6%. Analysts are predicting demand destruction will likely lead to a fall in credit, especially in segments like retail and SME. Retail focussed private sector banks like HDFC Bank, ICICI Bank and Axis Bank could face the heat.
“Our discussions with bankers suggest that cards/personal loan growth has already come-off, while a recovery in vehicle finance will be delayed, and mortgage growth too will be hit due to the lockdown. Retail private banks have for long reported strong financial performance led by healthy credit growth/NIMs and moderate loan loss provision feeding on strong consumption, captive customers and better analytics,” said Emkay Financial Services in a preview.
“However, we believe that the rising risk of an economic recession in the wake of the Covid-19 outbreak is likely to pause, if not stop, this cycle. We expect private banks to report a 3% earnings decline in Q4, mainly dragged by Yes/RBL/IndusInd,” the preview added. Emkay has already cut its fiscal 2021 earnings estimate for private banks by around 20 to 40%.
Analysts said sectors like auto and ancillaries, logistics, aviation and hotels will be the most severely hit.
“The large companies may still be able to pay, but what happens to the smaller guys? Then there are questions on whether retail borrowers and SMEs will be able to pay the bunched up interest on the moratorium after three months. NBFCs are definitely going to suffer because not all of them will have the resources to repay their debt, and the situation is such that cost of funds will definitely increase,” said Siddharth Purohit, analyst at SMC Global Securities.
Analysts said the extention of the lockdown to the end of the month has most likely put the first quarter to jeapordy for both banks and NBFCs. The impact of this could also be felt for the whole of the first half of fiscal 2021.
Some banks, like IndusInd and RBL, are also facing pressure on the liabilities side due to a flight of deposits in March. The asset side challenges will compound their problems.
“Among banks, we selectively prefer banks with healthy capital position, retail liability franchise and reasonable core earnings to absorb asset quality shocks (ICICI, HDFC Bank, SBI and City Union Bank). Within NBFCs, we prefer housing finance companies over asset finance companies due to long-tenor asset maturity, secured exposure and lower dependence on cash/physical collections,” Emkay said
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