You are here: Home » Finance » News » Banks
Business Standard

State-run banks likely to see bad loan additions moderate: Morgan Stanley

Structural issues, however, could cap returns on their stocks, Morgan Stanley said

Topics
Morgan Stanley | public sector banks | Banking sector

Reuters  |  BENGALURU 

banks, npa, loans, recapitalisation, bad loans, loan restructuring, debt
Representational image

Indian state-owned lenders are expected to see additions to bad loans moderate, but structural issues at the could cap returns on their stocks, said on Thursday.

Some of the country's state-owned have long struggled with a pile of bad loans, prompting the government to pump in more funds to shore up their balance sheets.

"Over the past few years, state-owned enterprise have seen significant capital infusion by the government, lower risk-weighted assets density, higher provisioning and some large recoveries," the brokerage said in a report, adding that as slippages moderate, fresh additions to bad loans, credit costs will also moderate over the next few years.

The brokerage preferred India's largest lender State Bank of India, as well as large private banks, expecting them to play a major role in the corporate recovery cycle.

In February, SBI said its asset quality has remained largely stable and the lender revised its credit cost guidance to lower than 2% for the financial year. A return to pre-pandemic levels of retail growth drove the bank's third-quarter profit well past estimates.

But weak underwriting practices, diminishing loan market and deposits share in the sector will weigh on the stocks of many other even as cheap valuations make them look attractive, said.

"We think state-owned enterprise banks will continue to lose loan market share given technology changes, strong competition and a weak internal rate of capital generation," analysts at the brokerage said.

The Nifty public sector bank index was down 0.4% on Thursday. The index has risen nearly 39% so far this year against a drop of about 31% in 2020.

 

(Reporting by Nallur Sethuraman in Bengaluru; additional reporting by Chris Thomas; Editing by Rashmi Aich)

Dear Reader,


Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

First Published: Thu, March 04 2021. 13:58 IST
RECOMMENDED FOR YOU
.