A moderation in credit costs post the spike in H1 FY21 is expected to drive ROE recovery in banks like Axis, ICICI, HDFC, and SBI from H2.
Forbearance is masking problem assets for Indian banks arising from the pandemic.
Banks are likely to see a surge in profits as they will not have to spend a fortune on provisioning for stressed assets. A moderation in credit costs post the spike in the first half of the current fiscal year is expected to drive ROE recovery in banks like Axis, ICICI, HDFC, and SBI from the fiscal’s second half, according to a report by Credit Suisse. The stress debt of the companies has significantly reduced, while only 35 per cent of the debt is from the companies where interest outgo is more than the EBIDTA, the report added.
On average, the stress debt from the companies where interest outgo is more than the EBIDTA was 40-50 per cent over the last 5 years, and nearly 55 per cent in the first quarter of the current fiscal year. The share of debt with loss-making companies also fell to 23 per cent. One of the primary reasons for the reduction in the share of stress debt is the rise in companies’ EBIDTA as the earning have risen due to lower costs. The EBIDTA of companies grew 54 per cent on-quarter and 8 per cent on-year in the second quarter. The earnings have majorly grown in the metal and telecom companies.
The metals companies have seen a strong improvement in profitability, with EBITDA growing 45 per cent on-year, and 2.5 times on-quarter, on the back of rising prices. Metal prices rose 30 per cent on-year and therefore, these companies account for nearly 40 per cent of the reduction in the share of the debt, the Credit Suisse report added.
The share of debt in the telecom companies has also reduced to 55 per cent as Bharti Airtel has exited the list, post several quarters of steady improvement. Further, the power companies saw some improvement. Meanwhile, it is estimated that the Covid stress is not very apparent in the books of companies and thus, not many companies are asking for restructuring.