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India Equity Research Reports, IPO and Stock News
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Recent developments have raised concern over loan quality, especially in
infrastructure and real estate. Although we see no immediate risk of
slippage, Yes Bank and Canara Bank are most exposed to infra, Punjab
National Bank, ICICI Bank and Oriental Bank have highest exposure
to real estate, and infrastructure financiers like Power Finance, Rural
Electrification and IDFC have high concentration risk. HDFC Bank and
ICICI seem to be best placed to weather such risks.
NPL worries. Recent negative developments in infrastructure and real
estate, falling merchant power tariffs, rising interest rates and delays in
environmental clearance for projects have raised concerns over whether
some bank loans may have to be restructured or could become
nonperforming (NPLs). Infrastructure loans have been the fastest growing
segment in the past few years and now account for 13% of total loans,
with power accounting for about 50% followed by telecoms and roads.
Real-estate lending (excluding mortgages) is about 10% of total loans, of
which only 30% is to commercial real estate. An additional 2% of bank
loans are in capital-market exposures, including loans against shares,
promoter funding, etc.
Exposure to infrastructure. Based on banks’ Basel-II disclosures,
infrastructure loans form 2-20% of loans for banks under our coverage, with
Oriental Bank (OBC IB - Rs323.4 - O-PF), Yes Bank (YES IB - Rs241.9 -
BUY) and Canara Bank (CBK IB - Rs534.1 - O-PF) having the highest
exposure. Canara and OBC also have higher exposure to the power sector
and Yes Bank has higher exposure to telecoms at 8% of loans. While Power
Finance (POWF IB - Rs251.9 - BUY) and Rural Electrification (RECL IB -
Rs237.2 - O-PF) are financiers only to power projects, 40% of IDFC’s (IDFC
IB - Rs125.8 - BUY) loans are to the power sector and 21% are to telecoms.
Exposure to commercial real estate. Loans to the real-estate sector
form just 3% of total loans, but they may be vulnerable to a sharp
correction in property prices or a liquidity squeeze on developers. Punjab
National Bank (PNB IB - Rs986.5 - O-PF), ICICI Bank (ICICIBC IB -
Rs961.5 - BUY) and OBC have the highest exposure to this segment at 7-
8% of loans. HDFC Bank (HDFCB IB - Rs2,019.3 - BUY) and Axis Bank
(AXSB IB - Rs1,165.8 - BUY) have higher exposure to the capital market
at 3-5% of loans.
Concentration risks. Power Finance, Rural Electrification and IDFC are
most vulnerable to an NPL uptick in infrastructure. Power Finance and
Rural Electrification also have very high concentration risk, with their top-
10 borrowers accounting for 45-50% of loans, whereas IDFC’s top-20
borrowers form 44% of loans. And earnings risk from an increase in NPLs
is higher for Power Finance and Rural Electrification as they do not carry
floating provisions, whereas IDFC has an NPL coverage ratio of about 8x.
HDFC Bank, ICICI best placed. We do not foresee a significant rise in
NPLs or loan restructuring in these sectors and hence our estimates are
based on normalised slippages plus some slippage from existing
restructured loans. However, should NPLs in these sectors increase, the
least vulnerable banks are HDFC Bank due to its higher share of retail
loans and ICICI Bank due to a seasoned loan book and zero NPL formation
in the past two quarters.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Recent developments have raised concern over loan quality, especially in
infrastructure and real estate. Although we see no immediate risk of
slippage, Yes Bank and Canara Bank are most exposed to infra, Punjab
National Bank, ICICI Bank and Oriental Bank have highest exposure
to real estate, and infrastructure financiers like Power Finance, Rural
Electrification and IDFC have high concentration risk. HDFC Bank and
ICICI seem to be best placed to weather such risks.
NPL worries. Recent negative developments in infrastructure and real
estate, falling merchant power tariffs, rising interest rates and delays in
environmental clearance for projects have raised concerns over whether
some bank loans may have to be restructured or could become
nonperforming (NPLs). Infrastructure loans have been the fastest growing
segment in the past few years and now account for 13% of total loans,
with power accounting for about 50% followed by telecoms and roads.
Real-estate lending (excluding mortgages) is about 10% of total loans, of
which only 30% is to commercial real estate. An additional 2% of bank
loans are in capital-market exposures, including loans against shares,
promoter funding, etc.
Exposure to infrastructure. Based on banks’ Basel-II disclosures,
infrastructure loans form 2-20% of loans for banks under our coverage, with
Oriental Bank (OBC IB - Rs323.4 - O-PF), Yes Bank (YES IB - Rs241.9 -
BUY) and Canara Bank (CBK IB - Rs534.1 - O-PF) having the highest
exposure. Canara and OBC also have higher exposure to the power sector
and Yes Bank has higher exposure to telecoms at 8% of loans. While Power
Finance (POWF IB - Rs251.9 - BUY) and Rural Electrification (RECL IB -
Rs237.2 - O-PF) are financiers only to power projects, 40% of IDFC’s (IDFC
IB - Rs125.8 - BUY) loans are to the power sector and 21% are to telecoms.
Exposure to commercial real estate. Loans to the real-estate sector
form just 3% of total loans, but they may be vulnerable to a sharp
correction in property prices or a liquidity squeeze on developers. Punjab
National Bank (PNB IB - Rs986.5 - O-PF), ICICI Bank (ICICIBC IB -
Rs961.5 - BUY) and OBC have the highest exposure to this segment at 7-
8% of loans. HDFC Bank (HDFCB IB - Rs2,019.3 - BUY) and Axis Bank
(AXSB IB - Rs1,165.8 - BUY) have higher exposure to the capital market
at 3-5% of loans.
Concentration risks. Power Finance, Rural Electrification and IDFC are
most vulnerable to an NPL uptick in infrastructure. Power Finance and
Rural Electrification also have very high concentration risk, with their top-
10 borrowers accounting for 45-50% of loans, whereas IDFC’s top-20
borrowers form 44% of loans. And earnings risk from an increase in NPLs
is higher for Power Finance and Rural Electrification as they do not carry
floating provisions, whereas IDFC has an NPL coverage ratio of about 8x.
HDFC Bank, ICICI best placed. We do not foresee a significant rise in
NPLs or loan restructuring in these sectors and hence our estimates are
based on normalised slippages plus some slippage from existing
restructured loans. However, should NPLs in these sectors increase, the
least vulnerable banks are HDFC Bank due to its higher share of retail
loans and ICICI Bank due to a seasoned loan book and zero NPL formation
in the past two quarters.
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