Vineeta Sharma of Narnolia Financial Advisors said corporate lenders have shown some sign of positive trend this quarter. The pre-provisioning profit (PPP) for PSU as well as private lenders have grown well.
Narnolia Financial Advisors
The Nifty is trading at an all-time high. At the current level, Nifty is trading at 21 times its expected FY19 EPS. Considering strong domestic inflows, Nifty is expected to trade between 18x and 22x of its expected one year forward earnings.
Inside this broad range of 18x-22x, where Nifty would exactly be, will depend basically on macros, global issues and how corporate facing banks perform. Monitoring corporate lenders performance is also important as it will have a big impact on how ultimately FY19 earning shapes up.
At the beginning of the current financial year, Nifty was expected to witness 23 percent EPS growth in FY19. Out of this 23 percent, the three large corporate lenders: SBI, ICICI Bank and Axis Bank contribution was 7.6 percent. It means if these corporate lenders do not show a profit in FY19 then for Nifty, EPS growth will be 15.4 percent only.
Corporate lenders have shown some sign of positive trend this quarter. The pre-provisioning profit (PPP) for PSU as well as private lenders have grown well.
Advances too have grown at a healthy rate and amongst advances; retail book mix for most banks is improving. Amongst the corporate advances, A-rated books have grown at a healthy pace.
The growth in PPP has not yet translated into healthy Profit After tax but, the management commentary of most of the lenders with high corporate exposure has been rather encouraging. Fresh slippages have been mostly from the watchlist and the high provision coverage ratio of companies gives confidence that by the end of FY19, banks will start reporting growth in net profit.
Below are key takeaways on watch list and slippage from quarterly results of corporate lenders:
SBI: Out of Rs 14,856 crore of gross slippages, Rs 9,984 crore were fresh slippages and rest was Non fund based slippages from NPA accounts. Out of Rs 9,984 crore slippages, corporate slippages were Rs 3,704 crore during the quarter and 91 percent of this was from the watch-list.
The bank maintained guidance of 2 percent fresh slippages for FY19. Watch-list now stands at Rs 24,633 crore against Rs 28,989 crore a quarter back.
ICICI Bank: Total corporate and SME slippages were Rs 2,916 crore. Bank has disclosed BB and below rated portfolio of Rs 24,629 crore which is a potential stress going forward.
Management expects the additions to non-performing loans to be significantly lower in FY19 as compared to FY18 and NPA should decline going forward.
Axis Bank: Slippage was Rs 4,337 crore out of which Rs 2,218 crore of slippage was from corporate portfolio of which 88 percent was from BB and below rated watchlist.
The pool of BB and below rated portfolio increased to Rs 10,400 crore (2.1 percent of total customer assets) against Rs 9,000 crore last quarter. After this downgrade in Q1FY19, management believes that rating downgrade cycle has now normalized.
Bank of Baroda: Total slippages were Rs 4,733 crore out of this fresh slippages were Rs 2,869 crore. 85 percent of fresh slippages was from watchlist.
Watchlist declined from Rs 10,000 crore to Rs 8,600 crore in Q1FY19.Disclaimer: The author is the Head of Research at Narnolia Financial Advisors Limited. The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.The Great Diwali Discount!
Unlock 75% more savings this festive season. Get Moneycontrol Pro for a year for Rs 289 only.
Coupon code: DIWALI. Offer valid till 10th November, 2019 .