What Brokerages Have To Say About RBI’s Second Round Of Relief Measures

Analysts expect that the Reserve Bank of India’s second round of relief measures to support the economy amid the coronavirus outbreak to benefit only select non-bank lenders and large private banks.

While relaxation in norms to classify overdue repayments as bad loans and resolution of existing stressed accounts comes in as a relief, credit costs are likely to inch up, the analysts said in their research reports.

The RBI announced several measures, including relief for banks in classifying bad loans to liquidity support for non-bank lenders and increased emergency funding for state governments, as it feared that business disruptions due to the spread of Covid-19 and a 40-day lockdown across the nation could lead to a surge in bad loans.

• The central bank cut the reverse repo rate by 25 basis points to 3.75 percent.
• The ‘ways and means advances’ limit for states has been increased by 60 percent to about Rs 67,028 crore.
• A second round of targeted long-term repo operations of Rs 50,000 crore will be conducted to “begin with” to ensure that microfinance lenders and NBFCs are well lubricated.
• All-India financial institutions, such as Nabard, Sidbi and NHB, will be provided a special refinance facility of Rs 50,000 crore at the repo rate. This can then be further used for refinancing by non-bank lenders.
• The moratorium period of three months will be excluded from the 90-day period for non-performing asset classification. This will mean that starting March 1, an account can remain in default for 180 days before it is classified as a non performing asset.

Here is what brokerages have to say:

Credit Suisse

• A 25-basis-point reverse repo cut will result in a Rs 1,700-crore drag for bank net interest income and result in sharper deposit rate cuts.
• While the RBI pushes more liquidity to lenders and nudges banks to lend more aggressively, it continues to shy away from directly taking exposure to non-lenders or mutual funds.
• Expects only select NBFCs and prefer large private banks to benefit.
• Some of the smaller private banks would benefit from the reduction in liquidity coverage ratio requirement from 100 percent to 80 percent
• With non-performing asset recognition norms getting relaxed, non-performing loans likely to remain stable in March/June quarter.

Prabhudas Lilladher

• While the RBI’s policy measures did heavy-lifting, we do not see much reprieve for non-bank lenders.
• Sees repercussions for non-bank lenders such as (a) shrinkage in growth, shift in asset mix (b) near-term liquidity intact, but overhang of funding costs and repayment obligations (c) operational inefficiencies steered by high collection costs (d) elevated credit costs (salary cuts and layoffs).

Motilal Oswal

• While the National Housing Bank refinance facility would directly impact housing finance companies, the other two facilities to Sidbi and Nabard would not witness much refinancing to the non-bank lenders.
• Non-banking lending sector comprised less than 10 percent outstanding loans of Sidbi and Nabard as of financial year 2019.
• Targeted LTRO by banks would yield pressure on commercial papers issued by non-lenders/housing finance companies due to liquidity constraints.
• Relaxation of NPA norms would be a big relief to companies facing cash flow strain to revive and reorganise their business.
• Further, it’s a big relief for banks that lend to self-employed retail and the MSME/SME segments, which could have otherwise resulted in elevated slippages.
• Credit cost would witness an uptick in the subsequent two quarters, especially for IndusInd Bank, Federal, Bank of Baroda, Punjab National Bank and Bank of India due to high provisioning required.

Kotak Institutional Equities

• While the market risk is being managed with various RBI measures, the credit risk still remains.
• Expects the RBI to announce more measures soon, with emphasis on the bond markets to manage supply.
• Hike in Ways and Means Advances limit may help avert the tail risks for the state governments from state development loan auctions, the quantum may not be sufficient to address the supply concerns.