Bank | Assetmultiplier

22 Sep

Will continue to take contingent provisions for Vodafone-Idea – IndusInd bank

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.1% lower at 17,547. Top gainers in NIFTY50 were COALINDIA (+3.6%), TECHM (+3.6%), and HINDALCO (+2.7%). The top losers were NESTLEIND (-1.5%), HDFC (-1.4%), and ICICIBANK (-1.2 %). The top gaining sectors were MEDIA (+13.6%), REALTY (+8.5%), and METAL (+1.5%) while the top sectoral losers were FINANCIAL SERVICES (-0.9%), BANK (-0.8%), and PRIVATE BANK (-0.7%).

Will continue to take contingent provisions for Vodafone-Idea – IndusInd bank

Excerpts of an interview with Mr. Sumant Kathpalia, MD & CEO – IndusInd bank (INDUSINDBK), aired on CNBC TV18 on 21^st September 2021:

INDUSINDBK has planned a credit cost of 160-190 bps for FY22E with an additional 60-70 bps contingent provisions for Vodafone-Idea exposure. Will continue to take extra provision. There have been structural positive developments in case of the industry, but INDUSINDBK will wait for any further action from the Vodafone-Idea promoters before revising/lowering their planned provisions.
Collection efficiency in vehicle finance has been improving every month from the June-21 levels. In August, net collection was 97.5%. The bus segment and 3-wheeler segment are impacted due and require restructuring.
In the micro finance (MFI) segment, collections have to be looked at state wise. The overall portfolio efficiency is 94% barring states of Kerala, West Bengal, and Orissa that have accessibility issues. MFI will bounce back much stronger in 2HFY22 when covid-19 concerns reduce further.
In the vehicle finance book, seeing robust growth in car loans- especially used cars and scooters (90-95% of pre-covid), tractors (140% of pre-covid), construction equipment, LCVs (90-95% of pre-covid), and HCV (70%). Vehicle finance disbursements are almost coming to pre-covid levels (95-97%).
INDUSINDBK has been cautious with growth in MFI segment- specifically in Kerala, West Bengal, and Orissa and overall disbursement is at 70-80% of pre-covid levels.
On the non-vehicle side the bank is seeing growth coming back in loan against property LAP, MSME, commercial banking, and working capital.
In 1QFY22 loan book declined QoQ, whereas, management expects 2QFY22E to have some growth, but real growth will come in 2HFY22E.
FY22E exit growth in advances should be in double digits.
Within the corporate book, large corporates are seeing public sector spending but private sector capex has not taken off as expected, while working capital growth is robust. On the commercial side, there is deleveraging happening, while MSME is showing robust growth.
FY22E NIMs should be in the range of 4.15% to 4.25%. NIMs in 1QFY22 were 4.06% due to excess liquidity, and that will continue in 2QFY22E.
INDUSIND’s PPOP (Pre-provisioning Operating Profit) will continue to be be 5%+.
GNPA should remain within range of 2.6%-2.7% GNPA, and begin to reduce gradually, NPA should remain in range of 0.75%-0.84%
Restructuring book will increase in 2QFY22E as some vehicle finance segments need an extension in repayment.

Asset Multiplier comments:

Vehicle segments of buses and 3 wheelers have been impacted due to lower demand as schools, colleges and many offices are still shut. 3-wheeler drivers depend on the daily income and hence find it difficult to service loans when the requirement of 3-wheelere is lesser. Lending institutions across board are seeing asset quality issues in the vehicle finance space.
Corporate growth trends remain to be seen as there has been an increased focus on balance sheet strengthening across industries. Higher deleveraging and investing from internal cash flows could lead to lower corporate loan book growth for lenders.

Consensus Estimate: (Source: market screener and investing.com websites)

The closing price of INDUSINDBK was ₹ 1,143/- as of 22-September-2021. It traded at 1.9x/1.6x/1.4x the consensus BVPS estimate of ₹ 615/693/804 for FY22E/23E/24E respectively.
The consensus price target is ₹ 1,139/- which trades at 1.4x the BVPS estimate for FY24E of ₹ 804/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Mrunmayee Jogalekar Bank, IndusInd Bank 0 Comments Read more...

07 Sep

Bank to see a greater expansion in rural areas – HDFC bank

Update on the Indian Equity Market:

On Tuesday, NIFTY ended lower at 17,362 (-0.1%) as it closed 40 points below the opening level of 17,402. Among the sectoral indices, CONSUMER DURABLES (+1.0%), FMCG (+0.3%), and FINANCIAL SERVICES (+0.2%) ended higher, whereas REALTY (-2.3%), IT (-1.3%), and PSU BANK (-1.3%) ended lower. Among the stocks, BHARTIARTL (+2.6%), HDFC (+2.5%), and GRASIM (+1.6%) led the gainers while SUNPHARMA (-2.2%), BPCL (-1.8%), and HINDALCO (-1.8%) led the losers.

Excerpts of an interview with Mr. Rahul Shukla, Group Head, Commercial & Rural Banking, of HDFC Bank (HDFCBANK) with Economic Times on 6^th September 2021:

The reality is very different from what is spoken about in TV newsrooms. The commercial vehicle and construction equipment business is strong, credit utilisation by MSMEs is steadily increasing every month, the healthcare sector is fairly credit-strong.
The bank continues to expand its geographic footprint, extending credit in rural and semi-urban areas of the country, and sees no credit challenges in finding new business.
The bank is active in transportation finance, where it finances trucks, construction equipment, and tractors. The disbursements in July were 40% higher than in June, and in August, were 20-25% higher than in July.
The bank operates in 100,000 villages and in two years, it may expand to 200,000 villages. Even if it’s a huge jump, it is still only 30% of the market. The bank has a robust digital platform which has helped it to add new customers.
Rural lending today is about 90% crop-based lending. Crop-based lending is largely related to the price of dal and sugarcane. As the ecosystem is completely changing, there is a lot of push in vegetables, fruits, poultry, piggery, etc. which accounts for 60-65% of the crop-based lending.

Asset Multiplier Comments

Banks were willing to lend to the rural population during the 1^st covid wave period as they were not as much affected as urban areas. The rural population was largely affected during the 2^nd covid wave, and it is still recovering from the impact. Therefore, the dynamics related to lending may be different going forward.
HDFC Bank has seen a reduction in interest expenses and other operating expenses over the last 5 years. This trend is likely to continue in the upcoming years as the bank continues to manage its deposits and borrowings well. With reducing provisions led by an increase in NPA recoveries, the bank’s increasing geographic footprint, and well-balanced CASA deposits, we expect the bank’s prospects to improve further.

Consensus Estimate: (Source: market screener website and investing.com website)

The closing price of HDFCBANK was ₹ 1,570/- as of 07-Sept-2021. It traded at 3.7x/3.2x/2.7x the consensus book value estimate of ₹ 423/488/574 for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 1,760/- implies a PB multiple of 3.1x on FY24E BVPS of ₹ 574/-.

By Tanmay Gadre Bank, HDFC Bank #HDFCbank, bank, growth 0 Comments Read more...

31 Aug

Ambitious to take ROE to 18% – Axis Bank

Update on the Indian Equity Market:

On Tuesday, Nifty 50 closed at a record high of 17,132 (+1.2%), led by BHARTIARTL (+6.7%), BAJFINANCE (+5.1%), and HINDALCO (+4.9%). The top losers were TATAMOTORS (-1.5%), NESTLEIND (-1.2%), and INDUSINDBK (-1.2%). The sectoral gainers were led by METAL (+1.5%), HEALTHCARE (1.4%), and IT (+1.4%). MEDIA (-0.1%) was the only sector that ended in the red.

Excerpts of an interview with Mr. Amitabh Chaudhry, MD & CEO, Axis Bank (AXISBANK) published in The Economic Times on 27^th August 2021:

There are reasonable indications that the private capex creation has started, but only in some segments at this stage. The private sector capex is robust in segments such as upstream refinery, steel, cement, chemical, pharma, renewable, and storage systems.
The government has come up with a scheme inviting investments into the electronics and industrial automation, logistics, and export-oriented industries. The government is also investing in railways, roads, and highways. An accommodative stance by the RBI and the government is helping in the economic revival.
A lot of retail customers were supported in the first covid wave through two specific moratoriums and restructuring. This resulted in retail delinquencies not being as high as estimated. During the second wave, there was no moratorium and a lot of customers who availed of the moratorium were adversely impacted by the second wave.
For AXISBANK, a lot of the slippages on the retail side were from secured assets and loan-to-value against the secured assets were low. Either the customer repays, or the bank sells the assets. Hence, recovery was never an issue, it was a timing issue.
The stimulus led to a system liquidity surplus resulting in lower market borrowing rates. As a result, well-rated corporates are sitting on huge piles of cash and have repaid their borrowings. As a result, the credit growth of the industrial sector is being led by mid-sized corporates and some refinancing.
AXISBANK believes there are considerable credit opportunities as the economy starts reviving.
The bank is already operating in the zone of 15-16% Return on Equity (ROE). The ambition is to take it to 18%, which is an uphill battle.
AXISBANK believes it is very important to scale the subsidiaries further over the next couple of years.
Over the past 5 years, the acceleration towards embracing technology with the rapid emergence of fintech and Covid has only hastened the pace. AXISBANK recognised a few years back the need to scale up investments in technology. The technology spend has gone up ~78% in the last 2 years.
The entire strategy of AXISBANK on the digital front is around challenging themselves and working in partnerships with fintechs to provide solutions. AXISBANK will expand partnerships with fintechs going forward.
There are significant growth opportunities for the next 5-7 years. The Bank is laying the foundation for the future where it can capitalise on business opportunities in every segment.

Asset Multiplier Comments

Though slippages could remain elevated in the near term, healthy PCR (Provision Coverage Ratio) protects the Balance Sheet against any potential stress.
The bank is positive on economic revival which will lead to credit growth, healthy NIMs eventually helping to achieve the Bank’s target of 18% ROE.
With the work-from-anywhere culture and remote decision making, each organisation has realised that technology up-gradation is non-negotiable. AXISBANK has taken a step in the right direction by undertaking technology investments and execution of transformation projects.

Consensus Estimate: (Source: market screener and investing.com websites)

The closing price of AXISBANK was ₹ 738/- as of 31-August-2021. It traded at 2.0x/ 1.8x/ 1.5x the consensus book value estimate of ₹ 370/ 420/ 479 for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 871/- implies a PB multiple of 1.8x on FY24E BV of ₹ 479/-.

By Maitreyee Vaishampayan Axis Bank, Bank bank, liquidity, RoE 0 Comments Read more...

29 Jul

Over 50% of slippages from the MSME sector: Canara Bank

Update on the Indian Equity Market:

On Thursday, NIFTY closed at 15,779 (+0.4%). Top gainers in NIFTY50 were Hindalco (+10.1%), Tata Steel (+6.8%), and SBI (+4.1%). The top losers were Maruti (-2.3%), Power Grid (-2.1%), and Bajaj Auto (-1.6%). The top sectoral gainers were METAL (+5.0%), PSU BANK (+3.2%), and REALTY (+1.6%) and the sectoral losers were FMCG (-1.0%), AUTO (-0.4%), and PHARMA (-0.3%).

Excerpts of an interview with Mr LV Prabhakar, MD, Canara Bank (CANBK) with ET Now dated 28th July 2021:

As far as slippages are concerned, they had given the guidance earlier in the quarter that their slippages will be around Rs 40bn. They worked on those lines.
As far as the retail is concerned, their NPA is only 1.5%. One thing is timely assistance to these people, retail as well as MSME, and the second one is restructuring also helped a lot in assessing these people, at the same time controlling the NPAs.
Out of Rs 42.5 bn slippages, about 55% to 58% is from MSME and 18% to 20% is it from retail. The rest is from other sectors.
The lockdown led to the closure of business and cash flows were not there for MSME borrowers, as well as other people. It was a challenge in the month of April and May.
In June, their collection efficiency increased to 91%. RBI resolution framework has helped a lot in assessing these people and in controlling the NPAs by restructuring the loans, wherever it is required.
The best part of this restructuring, as far as their bank is concerned, is under MSME. They have restructured about Rs 33 bn and retail about Rs 76 bn and the total amount are over Rs 132 bn.
After restructuring the people have started paying the instalments and already out of this, they have recovered about Rs 640 bn, out of which Rs 350 mn is an advance payment.
They are going to have about 12% of their share in the equity and they are working on the accounts which can be transferred to this ARC with the approval of the board.
In the last five quarters, every quarter, QoQ, the bank is strengthening the balance sheet. They are controlling the expenses. They are increasing the fee-based income because of which today their operating profit is at Rs 57 bn YoY; there is a growth of 34%.
As far as loan book is concerned, corporate is about 45% and in the next couple of quarters, they do not see any stress as far as infrastructure and NBFC accounts are concerned because accounts have already passed through the stage. Now they are out of that impact of COVID.
As far as provisions are concerned, as of date, all the accounts are amply provided. The provision coverage ratio is 81.18%. The bank is in a better position today compared to one year earlier when the provision coverage ratio was only 70%.
Bank feels that subsidiaries have a lot of potentials and going forward this potential is going to increase significantly.
Canara Bank stands 6th among 44 banks in the digital banking area. Going forward they are encouraging their customers to do more and more transactions through digital mode and they are encouraging their staff to handhold the customers to use the digital mode. Especially mobile banking, internet banking and also the debit cards and the credit cards to a larger extent, in which they have achieved significant success.

Asset Multiplier comments:

The future of banking will be driven by major technological changes and will keep transforming.
The future of banking is ‘Digital’. since most banks have already undergone their digital transformation, it will help in further stabilizing the Indian Banks.

Consensus Estimate: (Source: market screener and investing.com websites)

The closing price of CANBK was ₹ 150/- as of 29-July-2021. It traded at 0.5x/ 0.4x/ 0.4x the consensus book value of ₹ 319/ 347/ 426 for FY22E/23E/24E respectively.
The consensus price target is ₹ 160/- which trades at 0.4x the book value for FY24E of ₹ 426/-

By Sharvari Joshi Bank, Canara Bank 0 Comments Read more...

20 Jul

Focus on Technology aided Market Share Growth – SBI

Update on Indian Equity Market:
On Tuesday, markets ended lower with Nifty closing 120 points down at 15,632. ASIANPAINT (+5.4%), ULTRACEMCO (+1.8%), HINDUNILVR (+1.0%) were the top gainers on the index while HINDALCO (-3.7%), INDUSINDBK (-3.2%) and TATASTEEL (-2.7%) were the top losers for the day. Among the sectoral indices, FMCG (+0.1%) was the sole gainer, while MEDIA (-2.6%), REALTY (-2.5%) and METAL (-2.3%) were top losers.

Excerpts of an interview with Mr. Dinesh Khara, Chairman of SBI with ET NOW on 16th July 2021:

SBI’s growth is directly linked with India’s growth story. The Bank expects its loan book to grow across both working capital and term loan segments at 8% if the Indian economy grows around the same rate.
The 2nd wave impact has been reduced now. The activities are recovering to March-21 i.e pre- 2nd wave levels due to a dip in cases and increased vaccination exposure, the commodity cycle and consumer demand are now back to March-21 levels.
The Bank was not caught off guard during the 2nd wave as it was during the first wave. It was well prepared and did not face headwinds during the second wave.
RBI’s timely intervention to address resolutions of NPAs has helped the bank manage its asset quality with regards to exposure to the MSME sector and has provided much-needed relief for the sector.
SBI is a proxy for the Indian economy.
The NPA cycle, both net and gross, has reached a 5 year low, so the growth in the Indian Economy in the longer term and the bank’s capabilities to manage its loan book indicate a similar trajectory going ahead.
Listing of SBI MF is on the cards, the discussion is ongoing with the JV Partner. They are awaiting a unanimous decision and expect some movement in the upcoming quarters.
Fintech Space dominated by Paytm is demonstrating attractiveness to premium valuations, however, the Bank wants to focus its fintech segment SBI YONO to create long-term value for its stakeholders and doesn’t plan to list it for an IPO.
Fintech players operate in a niche segment, who don’t offer full-scale banking operations, so it’s an excellent opportunity for the bank to collaborate with such players to expand its growth drivers.
The Flight to Safety approach in uncertain times has helped large banks grow their liabilities and by extension, their loan book during the pandemic, the bank expects further consolidation of market share among top players.
The Capex and Credit Cycle recovery is evidential in the Cement, Iron and Steel, and the FMCG sectors with some capacity expansion on the cards.

Asset Multiplier Comments:

SBI, India’s largest bank is a proxy to India’s growth story. The bank is well-positioned to take benefit of all the disruptions and growth possibilities offered by the pandemic.
SBI has separated itself from other PSU banks that are riddled with operational inefficiencies and rigid cost structures, making it an attractive proposition in the banking sector.

Consensus Estimates (Source: market screener website):

The closing price of SBI was ₹ 421/- as of 20-July-2021. It traded at 1.4x/1.2x/1x the Book Value per Share (BVPS) estimate of ₹ 309/ ₹ 354/ ₹ 397 for FY22E/23E/24E respectively.
The consensus price target is ₹ 515/- which trades at 1.3x the BVPS estimate for FY24E of ₹ 397/-

By Pratik Mate Bank, SBI 0 Comments Read more...

08 Jun

Expect retail stress to reduce by September; MSME stress by Q3 or Q4– Punjab National Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 15740 (-0.1%) as it could not sustain the intraday highs. Among the sectoral indices, IT (+1.2%), PHARMA, REALTY and MEDIA (+0.9%), ended higher while PSU BANK (-1.5%), METAL (-1.1%), and BANK (-1.0%) led the losers. Among the stocks, TATAMOTORS (+3.2%), TECHM (+2.3%), and BHARTIARTL (+2.1%) led the gainers while HINDALCO (-1.8%), TATASTEEL (-1.7%), and JSWSTEEL (-1.3%) led the losers.

Excerpts of an interview with Mr. Mallikarjuna Rao, MD, and CEO, Punjab National Bank (PNB) with CNBC TV18 on 7th June 2021:

On an outstanding basis, the gross NPA and net NPA are flat, but the credit outstanding for the quarter ended March 2021 is down by 3%, which is why the gross NPA numbers seem elevated at 14%.

Due to the covid-19 second wave, the proforma NPA has become worse across the banking industry, including PNB. The NPA composition consists of retail and MSME clients, whereas there are no corporates.
As collections from clients are improving, the stress of retail clients would be adjusted to a great extent by September, and of MSMEs by Q3 or Q4 of FY22. The collections were at 91% in May 2021, and around 84% in April 2021.
The net NPA has gone from 4% to 5.7% in Q4FY21 on a QoQ basis. Write-offs in Q4FY21 are at Rs 72280mn, whereas the recovery and upgrades are at Rs 69990 mn respectively in Q4FY21 on a QoQ basis.
During FY21, the credit cost was at 2.5%. During FY22, the profit is expected to not be less than Rs 60,000 mn and the credit cost is expected to be at 1.5%.
PNB is expecting a recovery of Rs 6,000 mn from DHFL, with no specific date of recovery mentioned.
PNB is well capitalized, having a capital adequacy ratio of 14.2%

Asset Multiplier comments:

With the various states throughout the country unlocking and recovering from the impact of the covid- 19-second wave, the collections will improve in 1HFY22 and will become better in the second half. Improving asset quality and lower credit costs will be a feature of many Indian banks in FY22E.

Consensus Estimate: (Source: market screener and investing.com websites)

The closing price of PNB was ₹ 42/- as of 8-June-2021. It traded at 0.51x/ 0.48x the consensus book value estimate of ₹ 80.8/86.4 for FY22E/FY23E respectively.
The consensus target price of ₹ 39/- implies a PB multiple of 0.45x on FY23E BVPS of 86.4/-.

By Tanmay Gadre Bank, Punjab National Bank capital adequacy, NPA 0 Comments Read more...

25 May

Will offer better interest rates to depositors once loan book starts growing – State Bank of India

Update on the Indian Equity Market:

On Tuesday, NIFTY ended marginally higher at 15208 (+0.1%) as it could not sustain the intraday higher levels. Among the sectoral indices, MEDIA (+3.2%), IT (+1.0%), and AUTO (+0.7%) ended higher while PSU BANK (-1.3%), PRIVATE BANK (-0.9%), and BANK (-0.8%) led the losers. Among the stocks, ASIANPAINT (+3.5%), TITAN (+3.3%), and JSWSTEEL (+3.0%) led the gainers while HDFCBANK (-1.9%), HDFCLIFE (-1.4%), and AXISBANK (-1.2%) led the losers.

Excerpts of an interview with Mr. Dinesh Khara, Chairman, State Bank of India (SBIN) published in The Economic Times on 23^rd May 2021:

SBIN has been cautious in terms of building a healthy balance sheet. After careful evaluation and ensuring there are enough risk mitigants, they underwrite the risk.
There has been a growth in the retail book, and the retail book’s stress is the least possible. The growth in the retail book provides a decent earnings headroom in the future.
The corporate credit growth in 4QFY21 looks muted but they have sanctioned limits that have been utilised to the extent of ~30%. They have seen 70% utilisation. There are sanctioned term loans that have not been availed to the extent of 28-30%.
They expect strong growth post demand recovery once Covid 2.0 subsidies. He is hopeful of robust credit growth in the corporate segment going forward. The Agriculture segment is going to be in focus in FY22 in addition to retaining the retail advances growth.
The resolution framework (RF) 2 announced on May 5 allows the banks to offer the resolution up to Rs 250 mn to individuals. The individuals in the personal loan segment can be offered the resolution or restructuring as needed.
SBIN does not expect much of a problem in the cash flow of their retail borrowers. There could be some anxieties but the bank isn’t concerned much.
When it comes to raising funds from the market, it is a function of liquidity in the market. Going forward, Mr. Khara believes the corporates will continue to borrow from banks. Depending upon their risk rating, corporates will be looking at borrowing from the markets. Bank borrowing or borrowing from the market, the only difference is the instrument. SBIN is a strong player in the market borrowing and has a treasury book of Rs 13000 bn.
In 4QFY21, the credit costs have gone down by more than 100bps but credit costs evolve as it will be a function of the macro and how the book behaves going forward. They would prefer to maintain the credit costs at these levels because going below the current levels would affect the profitability.
SBIN would prefer to offer better interest rates to depositors once the loan book starts growing.
Khara believes the deposit rates have bottomed out and there would not be any further cutting down of the deposit rate.
Economic situation permitting, SBIN would like to build the loan book and he expects to grow at a pace of at least 10%.

Asset Multiplier Comments

SBIN has been focusing on improving asset quality with credit cost and slippages reported in 4QFY21 being the lowest in 20 years. Despite Covid-19 induced stress, the retail loan book has done well and is stable.
With a gradual recovery in the return ratios, there could be a much better translation of operating profit to net profit in FY22-23E led by lower credit costs.

Consensus Estimate: (Source: market screener and investing.com websites)

The closing price of SBIN was ₹ 414/- as of 25-May-2021. It traded at 1.4x/ 1.2x the consensus book value estimate of ₹ 300/ 339 for FY22E/FY23E respectively.
The consensus target price of ₹ 456/- implies a PB multiple of 1.3x on FY23E BV of ₹ 339/-.

By Maitreyee Vaishampayan SBI asset quality, borrowers, loans 0 Comments Read more...

12 May

Localised lockdowns impacting collection efficiency – Bandhan Bank

Update on the Indian Equity Market:

The Indian benchmark indices closed in the red for the second day, due to concerns over the impact of faster inflation on dollar flows into emerging markets. The Nifty50 ended the day at 14,697 (-1.0%), dragged by TATASTEEL (-4.8%), HINDALCO (-3.5%), and JSWSTEEL (-3.5%). The top gainers in the index were TATAMOTORS (+3.2%), TITAN (+1.6%), and MARUTI (+1.3%). The sectoral gainers were PSU BANK (+3.2%), MEDIA (+0.7%), and AUTO (+0.2%), while METAL (-3.0%), PRIVATE BANK (-1.6%), and BANK (-1.3%) led the sectoral losers.

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank (BANDHANBNK) published in Mint on 12^th May 2021:

The complete impact of the second wave is yet to be felt, but Mr. Ghosh expects business to bounce back by June-21.
The impact of the second wave of the virus has been localised lockdowns. The advantage of localised lockdowns is businesses are still functional. There was a lack of access to villages and smaller localities last year, affecting collection efficiency.
Following localised lockdowns, collection efficiency has dropped 300-400bps from March-21. The drop has been due to complete lockdowns in certain areas and with branches in such areas, executives cannot go out for collections. This impact has been felt in April-21, he expects the efficiency to bounce back by June-21.
The microfinance part of their business is better off without moratoriums. In their case, borrowers repay if they can come to the bank’s offices or where the collection executives can reach. Wherever it is not permitted, the executives are not venturing out. Mr. Ghosh believes this is better than a moratorium, as nobody would want to repay under a blanket benefit.
The bank is providing loan restructuring if customers request it. The customers who are able to pay 50% or 75% in instalments are paying. The customers take it upon themselves to repay so that credit score isn’t impacted. About 78% of NPA (Non-performing Asset) customers have repaid in March-21.
He expects similar growth in credit growth in FY22 as last year (~20%).

Asset Multiplier Comments

As the bank has a higher exposure to rural and semiurban areas, there was a lower impact on its operations in 4QFY21. With lockdown restrictions imposed in rural areas as well due to the second wave, the bank may face issues with collection.
In the recently released 4QFY21 results, the Bank has recognised higher provisions for weaker borrowers adequately. While the impact of the second wave cannot be measured so soon, the bank is likely to maintain its conservative stance and maintain higher provisioning buffers going forward.

Consensus Estimate: (Source: market screener website)

The closing price of BANDHANBNK was ₹ 288/- as of 12-May-2021. It traded at 2.3x/ 1.9x the consensus book value estimate of ₹ 126/ 155 for FY22E/FY23E respectively.
The consensus target price of ₹ 384/- implies a PB multiple of 2.5x on FY23E BV of ₹ 155/-.

By Maitreyee Vaishampayan Bandhan Bank, Bank Banks, Collection efficiency 0 Comments Read more...

04 May

Cautious on MSME Portfolio – Indusind Bank

Update on the Indian Equity Market:

On Tuesday, Nifty closed in the red at 14,497 (-0.9%). Among the sectoral indices, PSU Bank (+3.4%) was the only gainer. Pharma (-2.0%), Auto (-0.9%), and Financial Services (-0.8%) closed in the red. SBI Life (+2.7%), BPCL (+1.6%), and ONGC (+1.4%) were the top gainers. Tata Consumer (-4.3%), CIPLA (-3.1%), and Dr Reddy (-2.1%) were among the top losers.

Excerpts from an interview of Mr. Sumant Kathpalia, MD & CEO, Indusind Bank with CNBC-TV18 dated 03^rd May 2021:

Speaking on the retail slippages, Mr Kathpalia said the increases in slippages were led by the commercial vehicle segment.
The collections in the month of April were 1% lower than the expected collections.
Speaking about MSME portfolio, he said the portfolio is worth Rs 110bn. These are loans given to small entrepreneurs for working capital requirements.
The loans given to entrepreneurs are secured in nature. The slippages in Q4FY21 were 3.5-4% and provisions are made.
The bank has given Rs 14bn into ECLGS scheme of SME portfolio. The commercial vehicle side of the book is doing well for the bank.
Transportation segment portfolio on the retail side is still lagging.
Speaking about vehicle finance, he said the disbursements had a growth of 30% YoY and in Commercial vehicles, the growth was 40% YoY.
The bank has a 12-14% market share in these segments and the bank will continue to maintain its high market share.
Speaking about the current environment, he said there is demand from large corporates and mid corporates. Going ahead the bank will stay cautious on its MSME portfolio.
In 4QFY21, the bank reported flat Net Interest Income (NII). Mr. Kathpalia said it was an outcome of low loan growth (3% YoY reported).

Asset Multiplier comments:

Several banks have a cautious stance on the MSME segment as lockdowns due to the 2nd wave of Covid-19 might impact small businesses.
In 4QFY21, Indusind Bank reported 30% YoY and 8% QoQ growth in vehicle disbursements. Certain state specific lockdowns might lead to decline in monthly auto sales which may impact the vehicle finance segment in 1HFY22E.

Consensus Estimate: (Source: Market screener website and Investing.com websites)

The closing price of Indusind Bank was ₹ 912 as of 04-May-2021. It traded at 1.4x/1.3 x the consensus BV per share estimate of ₹ 614/691 for FY22E/FY23E respectively.
The consensus average target price is ₹ 1,046/- which implies a PB multiple of 1.5x on FY23E BVPS of 691/-.

By Aniket Khanolkar Bank, IndusInd Bank 0 Comments Read more...

24 Feb

Expect credit costs to gradually normalize in FY22E – Axis Bank

Update on the Indian Equity Market:

Wednesday was a pause from normalcy at NSE as the exchange closed down at 11.40 am due to issues at both their telecom service providers. To compensate, NSE & BSE extended trading hours from 3.45 pm to 5 pm. Nifty closed 1.9% higher at 14,982. Within NIFTY50, HDFCBANK (+5.4%), COALINDIA (+5.3%), and AXISBANK (+5.2%) were the top gainers, while UPL (-2.4%), POWERGRID (-1.5%), and DRREDDY (-1.5%) were the top losing stocks. Among the sectoral indices, PRIVATE BANK (+3.9%), BANK (+3.8%), and FINANCIAL SERVICES (+3.4%) were the only gainers while IT (-0.1%) was the only sector to end with losses.

Expect credit costs to gradually normalize in FY22E – Axis Bank

Excerpts of an interview with Mr Amitabh Chaudhry, MD & CEO, Axis Bank, aired on CNBC-TV18 on 23^rdFebruary 2021:

AXISBANK was expecting to see slippages rise in 2HFY21. AXISBANK has already seen a large part of the slippages already happening in 3QFY21. Management expects slippages to be comparatively lower in 4QFY21, and stability to return in FY22E.
Management has been prudent in upfronting the provision hit and being conservative on restructuring and the Emergency Credit Line Guarantee Scheme (ECLGS).
Management expects the credit costs to start moving back to long-term averages gradually.
AXISBANK’s retail disbursements were back to pre-Covid levels in 3QFY21. They have seen the momentum continue till now. If economic activity slows down again, it will impact loan demand with a lag.
AXISBANK reported a 5.9% growth in advances in 3QFY21 which is conservative compared to growth reported by peers.
On the wholesale segment, AXISBANK is focusing on only certain segments as pricing is under pressure.
AXISBANK had slowed down on the SME book 2 years back. The SME book is now restructured and growth has started to come back.
On the Retail book, AXISBANK was cautious on the uptick when the demand came back, but December was very strong for them.
AXISBANK’s capital adequacy is among the industry best. He does not see the need for further equity issue in the next couple of years. Regardless, AXISBANK has the approval to raise Rs 50 bn via equity.
AXISBANK’s proposed deal with Max Life has received CCI approval. IRDAI approval has to be obtained by Max Life and the timeline for that cannot be predicted.
AXISBANK is always looking out for opportunities for acquisition. One space where they do not have a presence in the health and non-life side. If the right opportunity comes in, management will be open to acting on it. AXISBANK also wants to scale up subsidiaries, but only if opportunities appear at the right price.

Asset Multiplier Comments:

Most large banks have indicated that their credit costs have been upfronted and would see normalization FY22E onward. AXISBANK is no different in this aspect.
The banking sector overall is showing signs of improvement as the economy is getting back on track. However, the recovery hinges on the prevalence of this normalcy. In the event of a second wave of Covid-19 and any further disruption in the economic recovery, the performance across sectors will be impacted.

Consensus Estimate (Source: investing. com and market screener websites)

The closing price of AXISBANK was ₹ 753 as of 24-February-2021. It traded at 2.3x/ 2.0x/ 1.8x the consensus BVPS estimate of ₹ 328/ 368/ 419 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 764/- implies a PB multiple of 1.8x on FY23E BVPS of ₹419/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Mrunmayee Jogalekar Axis Bank, Bank 0 Comments Read more...