Tag - slippages

Provisions for slippages will affect short term outlook – LIC Housing Finance

Update on Indian Equity Market:

On Thursday, markets ended lower with Nifty losing 76 points to close at 15,691. ULTRACEMCO (+1.7%), TCS (+1.6%), and INFY (+1.4%) were the top gainers on the index while ADANIPORTS (-9.0%), INDUSINDBK (-3.0%), and HINDALCO (-3.0%) were the top losers for the day. Among the sectoral indices,  METAL (-2.3%),  REALTY (-1.7%), and PSU BANK (-1.4%) were the top losers, while IT (+0.6%) and FMCG (+0.1%) were the only gainers.

Excerpts of an interview with Mr Y Vishwanath Gawd, MD and CEO of LIC Housing Finance on CNBCTV18 dated 16th June 2021 :

  • Retail stress was the leading cause of slippages in non-performing assets (NPA). Substantial new provisions were needed to be made due to the Supreme Court Order last year, which compelled the company to make provisions in 4QFY21.
  • Project Finance and Developer Loans form just 7% of the loan book, so not much issue of NPAs there as the company has made adequate provisions for the loan book.
  • The One-time restructuring facility was provided last year by the government. Around 1.5-2% of the portfolio was restructured using the same facility, this year the company expects a similar restructuring process to be followed, the only concern will be an expectation of a longer repayment structure.
  • The disbursements grew over 97% YoY however the same was not reflected in the order book growth due to faster and larger repayments, consumers shifting their loans to other companies for better terms and restructuring offers during the pandemic.
  • Substantial reduction in the cost of funds has seen the margins improve to around 2.3-2.4% but the company expects margins to stabilise at these levels due to bottoming out of lending rates.
  • As far as the capital infusion is concerned, the company promoter LIC is investing through preferential allotment of 45.4 mn of equity shares which will further shore up leverage and provided much-needed cash impetus. 
  • The focus in FY22 will be to increase market penetration and further improve all the ratios to deliver better value and post incremental growth in the loan book portfolio.

Asset Multiplier Comments:

  • LIC Housing Finance has seen its NPA Provisions bottoming out due to the Supreme Court order. A substantial loan book growth, and improving margins will be the cause of higher growth rates going ahead.
  • As the stress from the Covid-19 pandemic subsides, the affordable housing industry will gather pace which promises better days for the company.

Consensus Estimates (Source: market screener website): 

  • The closing price of LIC Housing Finance was ₹480/- as of 17-June-2021.  It traded at 1.03x/ 0.92x the BVPS estimate of ₹ 462/ ₹ 518  for FY22E/23E respectively.
  • The consensus price target is ₹ 507/- which trades at 0.95x the BVPS estimate for FY23E of ₹ 518/-

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.”

Slippages and Credit cost to remain within guidance: State Bank of India

Update on Indian Equity Market:

Markets bounced back from Monday’s steep decline as Nifty closed the day 32 points higher at 14,708. Within the index, TATASTEEL (7.2%), TATAMOTORS (6.6%) and HINDALCO (5.7%) charged the index higher while KOTAKBANK (-3.9%), ADANIPORTS (-1.7%) and MARUTI (-1.6%) lagged the index. Among the sectoral indices, METAL (3.9%), REALTY (2.7%) and AUTO (0.8%) led the winners while FIN SERVICE (-0.5%), PVT BANK (-0.5%) and BANK (-0.4%) led the losing sectors.

Excerpts of an interview with Mr Dinesh Khara, Chairman, State Bank of India Ltd (SBIN) with CNBC -TV18 dated 22nd February 2021:

  • The bank is currently using data analytics to have more effective control over the quality of the loan book. All the measures have resulted in an improvement in the asset quality for the bank.
  • The quality of unsecured loan book depends upon the underwriting of the book. In the unsecured loan portfolio held by the bank, the majority of borrowers are salaried employees either from Government, the public sector or well-rated corporates. To that extent, although it is unsecured, there are no challenges in this book.
  • The corporate loan to working capital book ratio stands at 70:30 at present. He expects working capital utilization to improve with improving capacity utilization. 
  • The bank is not looking at the divestment of any subsidiary at the moment. He said that the bank will evaluate various options available for capital raising in the next financial year and could look at investment in the mutual fund business.
  • The bank is keeping a close watch on the stressed assets’ book and is making efforts via one-time settlement and other means to recover the loans as soon as possible. The slippages and credit cost is expected to remain within the guidance given by the bank.  
  • Digital transactions have gone up significantly in the current year. It has gone to the extent of 64% of the total transactions. The bank is trying to reduce its operating costs to improve cost to income ratio.

 Asset Multiplier Comments:

  • The focus on asset quality and the use of data analytics to keep watch on the quality of the book will lead to prompt decision making regarding the health of the loan book. With this, the confidence to achieve credit cost and slippages as per guidance reflects well for the company.
  • With the pick-up in economic activities, the improvement in collection efficiency augurs well for the banking industry. This will strengthen the asset quality as per the expectation of management.
  • The intent of taking efforts to monetize the stressed assets’ book will help the bank to strengthen the balance sheet over the period of time.

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

  • The closing price of SBIN was ₹ 397/- as of 23-February-2021.  It traded at 1.5x/ 1.3x/ 1.2x the consensus book value estimate of ₹ 269/ 301/ 340 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 385/- which trades at 1.1x the book value estimate for FY23E of ₹ 340/-

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.”


‘Even with Covid, our fresh slippages will be in control’ – SBI

Update on the Indian Equity Market:
On Monday, NIFTY ended up 81 pts (+0.7%) at 11,259.
Among the sectoral indices, MEDIA (+2.6%), AUTO (+2.4%) and METAL (+2.5%) were top gainers while PSUBANK (-0.5%) and PHARMA (-0.3%) were the losers.
Among the stocks, NTPC (+7.5%), EICHERMOT (+4.8%) and ZEEL (+4.7%) were the top gainers. SBI (-1.6%), BHARTIARTL (-1.5%) and BPCL (-1.3%) were the top losers.

‘Even with Covid, our fresh slippages will be in control’ – SBI

Edited excerpts of an interview with Mr. Rajnish Kumar, Chairman of SBI with Business Standard dated 14th Aug, 2020:

SBI Chairman Rajnish Kumar doesn’t see any reason to fear a sudden rise in bad debt during the pandemic. Legacy loans are well taken care of, the bank has enough capital, and the exposure to sectors affected by the Covid-19 stress is minuscule in relation to the balance sheet.

• His comments on restructuring of retail loans: SBI team is working on what the policy would be and to whom the relief should be extended. But mostly, the relief, if needed, would be for housing loans where a person has lost a job and is unable to pay his EMI or there’s been a temporary salary cut. In the case of SBI, the housing loan book under moratorium is about ~ Rs 32,000 crore. But he believes most customers would start paying EMIs from September as the moratorium comes to an end. But whoever needs relief should get it.
• When asked whether banks will have enough time to prepare resolution for all under the latest restructuring scheme, he replied that he doesn’t think they will have to wait for the RBI for such an exercise. There are not many accounts in the corporate group of ~ Rs 1,500 crore and above which would need to go to the committee because a lot of work has already happened under the June 7 framework. There will be some modalities that the committee will suggest, but the ground work such as who would need restructuring, their projections, estimations, etc., can be done.
• His views on banker’s ability to project the topline and bottom line: Future projection is the first thing that is considered in any proposal. Of course, the Covid-19 scenario brings in a lot of uncertainty. Nobody knows how long the pandemic will continue and what the revival plan will be. When you give credit or restructure, it’s based on certain assumptions, and even the current exercise will have to return to those assumptions, particularly for the term loans. The maximum one can postpone or restructure the instalments is for two years. So, whoever had to pay in five years will have to pay now in seven years. Another criterion is that the account should be performing. Whatever you have to do is within these two boundaries.
• When asked if SBI will need additional funds for the restructuring exercise he informed that the bank already has Rs 20,000 crs as an enabling provision. SBI will need to raise money from the equity market only if there is a growth in assets, for any sort of provisions for bad loans. For any risk capital, SBI have sufficient earnings and have the value sitting in subsidiaries.
• He stated that restructuring for retail has come for the first time, and is sure that lenders will make their assessment of portfolio. Moratorium by itself is not a pointer that everybody would apply or need restructuring. In the case of SBI, housing loans worth Rs 32,000 crore are under moratorium where zero or one installment has been paid. He believes many of them will start paying from September as moratorium was available and they were preserving cash. The loan to value for SBI in this segment is 60%. The restructuring would be needed in cases where income was impacted which is not a huge number and hence, any fear of large-scale restructuring is uncalled for.
• When asked whether he is concerned about the NPA situation if the pandemic lingers, he said that the scenarios are not uniform for every bank or every institution, it depends on the underwriting practices, or to which sectors they are exposed to, and what their level of risk diversification is. When negative growth is expected, it is natural that stress in the system will go up. It is a wait and watch situation for everyone. In the last three years, most banks have done a lot of clean-up and provision coverage ratio are at an all-time high. As for SBI, the provision coverage ratio (PCR) has improved from 61 to more than 86 per cent. Legacy NPA today is 1.86 per cent, and it was 5 per cent plus.
• He further commented on bad debt impact for SBI: He informed that SBI’s legacy costs are very minimal. As an example, today, in the corporate book, SBI’S net NPA is Rs 10,500 crore. Just one quarter’s earnings are sufficient to make it zero. The corporate book has no legacy credit cost left. In baseline scenario, not accounting for Covid, it is 1-1.5 per cent of slippages. Considering Covid, he believes in the worst-case scenario this 1.5 per cent can become 2.5-3 per cent. SBI’s exposure to the sectors impacted by Covid-19 is minuscule in relation to the size of the balance sheet.

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

• The closing price of SBI was ₹ 193/- as of 17-Aug-2020. It traded at 0.76x/0.7x/0.64x the consensus book value estimate of ₹ 258/279/305 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 265/- implies a PB multiple of 0.86x on FY23E BVPS of ₹ 305/-

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.”

Bank of Baroda: No Further Slippages

Update on the Indian Equity Market:

On Wednesday, NIFTY closed -0.6% lower. Among sectoral indices, NIFTY media (-4.5%), NIFTY PSU Banks (-3.1%), NIFTY Metal (-2.0%), NIFTY Bank (-1.8%), NIFTY PVT Bank (-1.8%) closed lower. None of the NIFTY sectoral Index ended on a positive note. The biggest losers were Yes bank (-5.7%), GAIL (-4.8%), ZEEL (-4.7%), whereas Britannia (+4.9%), TCS (+3.7%) and Reliance (+2.9%) ended with gains.

Bank of Baroda: No Further Slippages

Excerpts from an interview of Mr Murali Ramaswami, executive director, Bank of Baroda with CNBC-TV18:

  • Speaking about slippages, Mr Ramaswami mentioned that slippages during the last quarter were Rs 6,001 cr and 4 accounts constituted 60%-65% of it.
  • He said there is nothing to worry about as the worst is behind. Bank’s provision coverage ratio is adequate and the operating performance is growing continuously.
  • In total watch list of Rs 14,500 cr, DHFL is having exposure of Rs 1,900 cr.
  • Mr Ramaswami doesn’t expect any further slippages in the corporate book. About BBB accounts he says, that those are from quite some time with the bank and there are no new accounts.
  • Total exposure to NBFC’s is Rs 1.05 trillion and Rs 97,000 Cr is outstanding. One of the groups NBFC have slipped last quarter but as of now none of them are showing any sense of overdue.
  • Out of Rs 97,000cr outstanding, around Rs 10,000 cr is non reputed private sector.
  • Speaking about NPA’s he says, Gross NPA has come down from 10.28% to 10.25% on a quarterly basis. It will be sub-10% by the end of December quarter.
  • Net Interest Margin stood at 2.81%. Retail growth is primarily driven by auto and home loans. The current growth rate for auto and home loan is 16% and the expectation is that it will increase to 20%.
  • Retail loan, which is around ₹1.05 trillion is expected to rise to ₹1.3-1.35 trillion in this quarter. But overall advances are flat.
  • Some NBFCS have paid back and the bank didn’t take any additional exposure because of stress in that sector.
  • He added that HR integrations are complete, and the bank has saved ₹150 crores in amalgamation profits.
  • Speaking about MD, he says, that the bank does miss Mr Jayakumar. The government has given power to the ED’s to manage the business so there is no impact.

Consensus Estimate (Source: market screener website & Investing.com)

  • The closing price of Bank of Baroda was ₹ 93 /- as of 13-November-2019. It traded at a price to Book Multiple (P/B) multiple of 0.59x/0.54x/0.48x of the consensus book value estimates for FY20/21/22E of ₹ 157/172/192 respectively. 
  • Consensus target price of ₹ 128 /- implies a P/B multiple of 0.6x on B/V of ₹ 192 for the year ending Mar-22E.

HDFC Bank (HDFCBANK): Bank to cash on the festive demand

Update on the Indian market

On Monday, NIFTY continued the rally for the second consecutive trading day after Friday’s announcements of tax measures and revisions in GST rates leading to earnings upgrade of the companies. NIFTY closed 2.9% higher. The sectoral indices’ performance reflected the key beneficiaries of the change in tax rates with NIFTY BANK (+5.4%), NIFTY Financial services (+5.4%) and FMCG (+4.4%) were the biggest gainers while NIFTY IT (-2.9%) and NIFTY Pharma (-2.2%) were the losers. The biggest gainers were BPCL (+13.7%), LT (+9.1%), BAJFINANCE (+9%), EICHERMOT (+9%) while the highest losers were ZEEL (-8%), INFY (-5%).

HDFC Bank (HDFCBANK): Bank to cash on the festive demand

Key takeaways from the interview of Mr Aditya Puri, MD, HDFC Bank; dated 19th September 2019 on CNBC TV 18:

  • HDFC bank has made higher provision for Agri loans but the actual defaults are not high. Agri loan slippages were one-off and will come down post-harvest.
  • HDFC bank created contingency provisions as per RBI norms for NBFCs and for corporates which don’t have unhedged exposure. These provisions are expected to go away this quarter.
  • The cost to income ratio is expected to go down by 5% in the next 5 years for HDFC bank.
  •  Banks are not allowed to lend for land. In the real estate sector, commercial real estate is doing well. The middle, slightly above middle and affordable housing continues to see demand. The concessions announced by the finance minister of India are only for affordable houses. The Luxury flats, are the ones which will not benefit and the prices will eventually be determined by the market.
  •  HDFC Bank is looking ahead to a very good festive season of Diwali. From 27th September 2019 to 31st December 2019; HDFC Bank is coming up with a Diwali Dhamaka offer which will provide lower cost, cashback and discount from the vendor to the customers. HDFC Bank will give ~7-10% cashback over and above the discounts given by the vendor partners. HDFC Bank will maintain NIMS of ~4.3%.
  • On talking about the linking to external benchmark rates, Mr Puri mentioned that HDFC bank doesn’t have many floating loans. He mentioned that floating rate deposits are not feasible. There is a lot of pressure on banks to transmit lower rates, but there is a need for the debt market reforms. 

Consensus Estimate (Source: market screener website)

  •  The closing price of HDFCBANK was Rs 1,255/- as of 23-September-19. It traded at 4.1x / 3.6x / 3.0x the consensus book value for FY20E/ FY21E/ FY22E of Rs 308/ 351/ 413 respectively.
  • Consensus target price of Rs 2,661/- implies a P/B multiple of 6.4x on the FY22E book value of Rs 413/-

SBI 1QFY20 result update: Profitability sequentially better, pace of improvement disappoints.

Dated: 5th August 2019

  • Advances grew by 14% YoY to Rs 21,347 bn. Indian retail book growth was 17% while corporate book growth was 12%. Foreign advances book grew by 16%.
  • NII was Rs 229 bn, 5% higher YoY. Overall NIMs at the Bank level marginally improved to 2.81% from 2.78% in 4QFY19.
  • Total operating expense was 7% higher YoY. The increase was due to higher employee provisions on account of decline in bond yields.
  • Provisions were 52% lower YoY and 44% lower QoQ. The total provisions number was lower due to provision write backs of Rs 24 bn. NPA provisions were Rs 116 bn in 1QFY20 vs. Rs 130 bn in 1QFY19 and 173 bn in 4QFY19.
  • Reported PAT was at Rs 23 bn vs Rs 48 bn loss reported in 1QFY19 and Rs 8 bn profit in 4QFY19.
  • Asset Quality was stable on a sequential basis with GNPA and NNPA at 7.53% and 3.07% respectively.

Management commentary:

  • Slippages were high in 1QFY20 at Rs 162 bn compared to Rs 99 bn and Rs 75 bn in 1QFY19 and 4QFY19 respectively. Reasons for this jump include Rs 20 bn exceptional agri slippages in one state on account of farm loan waiver, higher SME slippages due to absence of RBI dispensation which was available in 1QFY19, Rs 20 bn due to some technical issues in an account that is being serviced regularly.
  • Out of Rs 116 bn NPA provisions made in 1QFY20, Rs 23 bn was provided against 2 accounts that are standard but need proactive provisions as per a recent RBI circular.
  • Management has guided to credit costs of 140 bps for FY20E. This includes any additional provisions that may be required for the 2 specific currently standard accounts (DHFL and one renewable energy account). This credit cost guidance is higher than the previous guidance of 100 bps.
  • Management is expecting loan growth of 12% and NIMs for the overall business of 3.15% in FY20E.
  • In the current scenario, management expects to achieve core RoA of 0.5-0.6% in FY20. Gains from recoveries or subsidiary stake sale will be over and above this return guidance. This is lower than previous comparable guidance of 0.70-0.75%

Consensus estimates (Source: Marketscreener website):

  • The stock price was Rs 300/- as of 5-Aug-19 and traded at 1.17x/ 1.04x the consensus Book Value for FY20E/21E BV of Rs 256/286 respectively.
  • Consensus target price is Rs 376/- implying P/B of 1.31x for FY21E BV of Rs 286