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These Four Banks To Return At Least 30% In FY20, Says Morgan Stanley

There may be another non-performing asset cycle of a lesser magnitude stemming from lower-rated corporates, says Morgan Stanley.

Cards are placed on a baccarat table during a gaming expo in Macau, China (Photographer: Paul Yeung/Bloomberg)
Cards are placed on a baccarat table during a gaming expo in Macau, China (Photographer: Paul Yeung/Bloomberg)

Morgan Stanley expects the market capitalisation of India’s four large lenders to grow by at least a third in the ongoing fiscal.

The market capitalisation of HDFC Bank Ltd., ICICI Bank Ltd., Axis Bank Ltd. and State Bank of India grew 30 percent in financial year 2018-19, according to a Morgan Stanley report. The trend may continue over the next year, it said.

The global research firm expects large lenders to take a bigger piece of India’s loan growth pie. “The big players become bigger and the weak ones will keep getting weaker,” Anil Agarwal, head of Asian Financial Research at Morgan Stanley, told BloombergQuint on the sidelines of its annual India summit. “The big guys can just take away (market) share with a large chunk of them not being able to lend.”

“State-owned banks and struggling non-banking finance companies do not have capital to lend,” Agarwal said, adding that higher margins on account of reduction in bad loan book will also aid the performance of four large lenders.

Another Bad Loan Cycle?

Agarwal said there may be another non-performing asset cycle of a lesser magnitude stemming from lower-rated corporates. “Nobody is lending to BBB and below as all the lenders want to lend only to retail and top-rated companies.”

You need to have credit flowing to the lower-rated corporates. If I start a company today, it won’t be AAA-rated. Otherwise its going to challenging because there is a part of the economy which is getting access to credit and another part not getting.  
Anil Agarwal, Head for Asian Financial Research, Morgan Stanley

Other Highlights:

On Current State Of NBFCs:

  • Total loan book of NBFCs and housing finance companies in India stands at Rs 25 lakh crore roughly.
  • 65-70 percent of these players have strong parentage and performing fine; rest are only finding liquidity constraints.
  • The resolution may not happen in a few months.

NPAs - Worst Is Behind Us?

  • Lumpy exposures have been taken care of.
  • Old bad loans have been weeded out by state-run banks with the help of recapitalisation.
  • New bad loans will emerge but not in the same magnitude as seen in the last three years.

Watch the full interview here: