Experts believe banks may report lower slippages in FY15. We see a possibility that loan impairment ratios could see a marginal improvement in FY15. A consensus emerging in recent quarters is that the slippages from the restructured loan portfolio could be high though one could challenge this hypothesis. However, our analysis of companies, even those where we are less optimistic of a recovery, suggests low share of principal repayment in the initial years, which could imply lower slippages in short, Kotak Institutional Equities said in a report.
The BSE Bankex ended 1.34% higher at 14,822.16 points on a day when markets ended at lifetime high. ICICI Bank (1.55%), SBI (2.62%) and Axis Bank (2.57%) were among major gainers. In year-to-date, Bankex gained 14%, outperforming markets as Sensex has gained 7.53% in the same period.
Market observers, however, maintain a cautious approach. We believe banks, especially private banks, have seen a massive expansion of NIM on the back of strong pricing in their corporate loan portfolio. We see this reversing for a few reasons. First, a steady improvement in financials of these borrowers, and a shift in pricing power as growth slows for banks, Kotak Institutional Equities added.
Among individual stocks, PNB (28.46%), Bank of Baroda (21.60%), Yes Bank (17.68%), SBI (17.29%), ICICI Bank (16.67%), Axis Bank (15.59%) and Federal Bank (31.91%) have been major gainers YTD.
Experts believe the asset quality is poised to improve in FY15. Macro recovery and potential for post-election reforms should see a gradual reduction in stressed loans on lower slippages and higher recoveries. PSUs, in particular, may see NPLs fall by 3% in FY16, after increasing 17.5% in FY15E, Goldman Sachs said in a note in last month and upgraded Bank of Baroda, PNB and State Bank of India.