Ashish Gupta, Managing Director and head of equity research India, Credit Suisse said, “The interest accrued and not collected still accounted for as much as 15-40% of 1Q NII, lowering the reliability of current reported profitability. Moreover, few banks reported, collection efficiency on the loans exiting moratorium remained well below pre-covid levels.”
The financial services company also noted that the banks are looking to strengthen balance sheets by raising capital with continued uncertainty on the magnitude of asset quality stress. They estimated that post these raises, private banks will have ability to absorb up to 7-10% credit costs and sustain common equity tier-1 (CET1) of over 12%.
So far, Yes Bank has raised Rs 15,000 crore, Kotak Mahindra Bank has raised more than Rs 7000 crore and IDFC First Bank has raised Rs 2000 crore. Meanwhile, Axis bank and ICICI bank are also looking to reinforce their capital by nearly 200 basis points in the coming weeks.
The report emphasised that the reported share of moratorium loans have dropped across private banks to 10-25% as of June 2020 as against 30-70% in April 2020. The benefits of moratorium have enabled reported slippages to be low in the June quarter, allowing banks to ascend coverage on existing non-performing loans by 300 to 900 basis points. Banks have also built covid provisions of 300 to 800 bps of loans under moratorium.
