The bank expects a lower recovery as customers who have the ability to pay will also hold back to enjoy the RBI moratorium and to have liquidity in difficult times.
Kotak Mahindra Bank share price fell more than 10 percent intraday on April 1 after the private lender talked of increased risk and cost due to extended moratorium and warned of default if recovery was delayed.
The stock has plunged 31 percent in two months, as the 21-day lockdown to control coronavirus raised fears of defaults that could result in NPA pressure. The stock was trading at Rs 1,163.30 on the BSE, down Rs 133.05, or 10.26 percent, at 1058 hours.
While addressing conference call, the country's fourth-largest private sector lender said it was seeing problems in unsecured personal loans such as credit cards and consumer durables, especially from customers who are fence-sitters and have the ability to pay but not the will. "Extra efforts are required to remind them through calls," it said.
"Defaults are expected to rise due to which recovery will be delayed. The bank is focusing to protect balance sheet rather than looking for balance sheet or income statement growth," said the lender.
The bank believes the economic recovery will take six to nine months if the coronavirus situation continued beyond a month (up to three-month time). "The management sees urban areas more problematic than non-urban areas."
The Reserve Bank of India has given a three-month moratorium for the payment of loans after the lockdown.
"The extended moratorium will increase the risk and costs for the banks due to the asset-liability mismatch," it said.
Here are the highlights of Kotak Mahindra Bank's conference call, collated by KR Choksey:Macro outlook
- The management foresees three types of scenarios. In the first scenario, the end of COVID-19 situation in 15-30 days' time (optimistic scenario) and everything will be normal in about two months.
- Scenario Two, assumes this situation to continue beyond 1 month (up to three-month time) economic recovery will take six-nine months for recovery.
- Scenario Three extends beyond three months, which is pessimistic. The company expects extended health problems and recovery, salary cuts and job loss. The management believes we are in Scenario Two.
- The management sees urban areas more problematic than non-urban areas.Recent movement in assets and liabilities
- On the liability side, the banks witnessed an increase in customer deposits although not significant but better than expected. There was an uplift in saving deposits and a marginal increase in current and term came from existing customers, other private banks including Yes Bank (post moratorium) and small finance banks.
- The bank doesn’t have too much government deposit exposure and hasn’t noticed a significant movement in these.
- On the assets front, the bank has been cautious about SME lending for the last one year. On the retail front, the bank will remain cautious but continue to grow home loans and unsecured loans, while on the wholesale front, the bank has been selective and not taken any concentrated bets.NPL recovery management
- The management believes this situation will require geared up efforts towards recovery of non-performing loans (NPLs) and proper recovery infrastructure in place.
- Retail borrowers are expected to repay EMIs on priority such as home loans, card loans and two-wheeler loans will be prioritized as compared to other personal loans.
- Expecting lower recovery as customers who have the ability to pay will also hold back to enjoy RBI moratorium and to have liquidity in difficult times.
- The bank is seeing a problem in unsecured personal loans, which include credit card, consumer durables and other personal loans, especially from the customers who are fence-sitters and have the ability to pay but are not willing. Extra efforts are required to remind them through calls.
- The bank believes, if you are not the first to reach the customer; you will end up losing money.
- Defaults are expected to rise due to which recovery will be delayed.
- The bank is focusing to protect the balance sheet rather than look for balance-sheet or income-statement growth.BFSI sector issues
- The management sees that in the present situation, the NBFC sector is more exposed to the solvency issue than the liquidity issue.
- On the liquidity side, the BFSI sector will face issues with regards to ALM mismatch, tightening of liquidity. However, these are manageable with infused liquidity and reasonable support offered by the Centre.
- The extended moratorium will increase the risk and costs for the banks due to ALM mismatch,
- In the case of the pessimistic scenario, the bank is expecting all the problems mentioned above to raise to the power of two or three.
Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.