What explains this big underperformance in banks besides moratorium being a big overhang?
The financial sector is the most leveraged space and a proxy of the economy as well. The overall downturn which we are seeing in terms of economic activities and prolonged disruption may be much prolonged compared to what was thought earlier in March. There is some kind of underperformance in the financials index. However, specific names or leading banks are still doing relatively better.
What are you anticipating in terms of not just the operational numbers but a commentary as well from HDFC Bank tomorrow?
This quarter is going to be the quarter of narratives beyond numbers and this is what we have highlighted in our preview as well. This will be true even for HDFC Bank. So, in terms of the narrative, we will have to look at how the moratorium has settled towards the end and what is the flow into the restructuring, with the Supreme Court’s interim order restraining banks from bagging any NPLs. Slippages are going to be non-existential apart from SMA 1, SMA 2 pool which was outstanding as of 1st of March. Maybe the banks that were looking to prudently recognise it upfront, might not be there now. The narrative becomes very critical in terms of the kind of stress which would be anticipated as we get into Q3 and post Q3 is going to be of prime relevance.
For HDFC Bank, we are quite positive. They have been quite resilient and confident all through since the Covid pandemic has started. They have performed relatively well and we are expecting similar kinds of earnings from them. They have published the business numbers in which they have highlighted advance growth of 16% odd which clearly suggests that the markets share gain is still on and with stable margins, we should see more than 15% net interest income growth for them.
Finally, the earnings trajectory would depend upon the credit cost as those slippages might not be there and the restructuring would be limited. We will have to watch out in terms of the provisioning stance which they are taking. Last quarter they built up some Covid related buffer but earnings will be driven more by whether they continue with a similar buffer and how the provisioning cost pans out in this quarter.
What are the key earnings you are watching out for?
In terms of earnings, this will be the beginning of the journey in terms of stress recognition as well as margin trajectory and that will be the key to watch out for in terms of industry wide growth. Given a low activity level, the average industry growth is still settling at 5 to 6 odd per cent. Overall, maybe the commentary from the banks in terms of how they are looking at restructuring and the extent as well as nature of restructuring is something that we will have to watch out for. Overall, banks have been suggesting low single digit restructuring at least in the interim and that is broadly the commentary that is going to be from most of the banks. But let us see as to how individual banks comment on their restructuring pool.
Any expectations from HDFC Bank or any other?
HDFC Bank, we have already discussed. Some of the names that will be watched are Axis and SBI. Federal Bank is coming out today so let us see as to how those earnings pan out for them. But the good thing about Federal is at least in terms of their deposit franchise in fact they have the lowest savings deposit rates in the industry at this point in time and in fact the term deposits are also very near to the leading banks. So liability is doing pretty well, asset quality hopefully they should not disappoint much and this will really help them as well in terms of the overall better earnings trajectory.
#hdfc #bank #net #interest #income #growth #expected #HDFC #Bank