Private banks like Axis Bank, ICICI Bank and IndusInd have shown their conservative side by raising provisions related Coronavirus uncertainties as they see a jump in defaults, but that may not be sufficient to cover all the losses that may come up as the cash flow position of corporates remain precarious after a near two-month lockdown.
Every private sector bank has increased its provision coverage ratio (PCR) in the quarter ended March, but Covid-19 related provisions have been varied, with some like IndusInd Bank keeping it at bare minimum, while some others like Axis Bank and ICICI Bank are choosing to take many times over the beyond prescribed limits.
Analysts said banks have rightly ramped up provisions in anticipation of future losses but the uncertainty about recovery means more may be required in the first two quarters of the current fiscal.
“The risks are not fully known right now but when a large bank like ICICI says that 32% of its loan book has opted for a moratorium it is a worrying sign. It is fair to assume some of these customers are facing serious cash flow issues and so providing for them is the prudent thing to do,” said Siddharth Purohit, analyst at SMC Global Securities.
ICICI Bank has made a Rs 2725 crore provision on this account more than four times the minimum Rs 600 crore required for the bank according to the RBI mandated 5% provisions required for loans given moratorium during the quarter.
Similarly, Axis Bank set aside Rs 3000 crore much higher than the minimum Rs 73 crore required according RBI calculations. In contrast IndusInd Bank made a Rs 260 crore provision just the bare minimum required by RBI.
RBL Bank made total provisions of Rs 115 crore compared to the Rs 7 crore mandated by RBI, while HDFC Bank made Rs 1550 crore Covid related provisions which it said were higher than required without giving details.
Purohit expects a fresh round of NPAs to be created due to this crisis and the disruptions caused due to Covid 19 will only be known after the lockdown is lifted.
Analysts said banks with a relatively high provision coverage ratio (PCR) are likely to be better placed to take the shock.
All private sector banks have increased PCR versus December 2019. Axis Bank’s PCR has improved to 69% from 60%, IndusInd Bank to 63% from 53%, RBL Bank to 64% from 58%, HDFC Bank to 72% from 67%. ICICI’s PCR though unchanged is highest at 76%.
“PCR is a good indicator of a bank’s wherewithal to absorb shocks. ICICI hence looks the strongest taking this parameter into account. It means that these banks have sufficient capital to make this provisions,” said Mahantesh Sabarad, head retail research at SBI Cap Securities.
Analysts said that banks which were so far seeing stress emerging from the corporate side will also have to look at retail loans as job losses and salary cuts could lead to defaults in these segments.
“Though banks with higher provisions are better placed it looks like banks will have to be prepared for higher defaults on both corporate as well as retail side which means more provisions. I am very apprehensive on bank performance for the next few quarters as the disruptions caused coudl start a new cycle of NPAs,” Purohit said.
via Banking – Banking/Finance – Industry – The Economic Times
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