ICICI Securities: Private Bank Q1 Review - Known Unknowns Addressed; Unknown Knowns Linger 

ICICI Securities Report

Our stance articulated in Q1 FY21 preview of Banking Financial Services and Insurance (BFSI) earnings being a typical was vindicated from the reported earnings for the quarter.

Unprecedented trends characterised the quarter:

1. contingency buffer augmented (similar to Q4 FY20, below our liking);
2. accelerated non-performing loan recognition (for few) amidst technically zero slippages;
3. Moratorium 2.0 the magic number nine (at lower end) and sub-15% (average) showed sharp improvement led by corporates, few pockets of retail (micro finance institution, unsecured, etc.);
4. sharp contraction in fee income; and 5) enough cost flexibility linked to business volumes.

However, stability in net interest margins (for many), treasury gains and cost flexibility (variable led) took us by surprise.

Core operating profit grew 5% YoY (down 2% QoQ) and elevated credit cost led to more than 15% decline in profit after tax.

We believe more visibility on growth, cost agility and credit cost will emerge only in second half of FY21 and will also determine respective player flexibility and strength of balance sheet –right now it is mere hope and belief.

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