Even bad news on asset quality is coming thick and fast, India’s top three lenders will be able to ride out the coming wave of retail stress, says Saurabh Mukherjea of Marcellus Investment Managers. He argues that HDFC Bank, ICICI Bank and State Bank of India will remain resilient while weaker lenders face balance sheet strain.
“My reading of the situation is, we’re heading back to a situation where effectively three banks will do well. The rest will have a really, really tough time on both sides of the balance sheet,” he said on The Wealth Formula podcast with N Mahalakshmi.
Mukherjea highlights one critical differentiator: the ability of stronger banks to constantly reassess credit risk and nudge riskier borrowers out through balance transfers. “A clever lender will keep assessing risk in the existing book and, if the buildup looks nasty, nudge the interest rate up. If that leads to the customer balance transferring out, then so be it,” he explained.
For example, he notes that lesser lenders often roll out the red carpet to existing customers seeking bigger loans. “A smarter lender will be circumspect on that repricing,” he said. Similarly, when the Reserve Bank of India cuts rates, large private banks don’t pass on the cut uniformly. “The riskier constituencies, I’ll keep them a little higher,” he said, pointing to a key way HDFC Bank and Bajaj Finance manage exposures.
This approach, Mukherjea argues, explains why quality banks have been able to preserve asset quality even as job losses in the tech sector and subdued demand in mortgages strain households. “One of the reasons we stayed invested in HDFC Bank through thick and thin is exactly this point of view,” he said.
He also points out that private banks have been proactive in tightening unsecured lending exposure. “On unsecured, HDFC Bank pulled back two years ago. Bajaj Finance too pulled back two years ago. There’s night and day difference,” he said.
For Marcellus portfolios, HDFC Bank remains a large position, ICICI Bank a smaller one, while Bajaj Finance has been trimmed as the asset quality cycle turned. Positions in lenders like Cholamandalam have also been reduced due to stress in commercial vehicles.
Mukherjea says, economic stress could deepens going forward, which will cause weaker lenders to struggle. But strong players with disciplined underwriting and risk-adjusted pricing will capture greater market share. “That’s what a clever lender does,” Mukherjea said.
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