“The interest accrued and not collected still accounted for as much as 15-40% of 1Q NII, lowering the reliability of current reported profitability,” said Ashish Gupta, Managing Director and head of equity research India, Credit Suisse. “Moreover, few banks reported, collection efficiency on the loans exiting moratorium remained well below pre-COIVD levels.”
Gupta also commented in the report that the benefit of moratoriums also enabled reported slippages to be low in the June quarter, allowing banks to ramp up coverage on existing non-performing loans by 300-900 basis points. Banks have also built COVID provisions of 300-800 bps of loans under moratorium.
The Credit Suisse also noted that banks were looking to strengthen balance sheets by raising capital with continued uncertainty on magnitude of asset quality stress. While Yes Bank has so far raised nearly Rs 15,000 crore, Kotak Mahindra Bank has raised upwards of Rs 7000 crore and IDFC First Bank has raised Rs 2000 crore. Axis and ICICI are also looking to bolster their capital by nearly 200 bps in the coming weeks.
“We estimate post these raises, private banks will have ability to absorb up to 7-10% credit costs and sustain CET1 of over 12%,” Gupta said.