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India may see another NPL cycle stay put with large banks: Morgan Stanley
The Economic Times  |  May 15, 2019

India is at an increased risk of witnessing fresh non-performing loans (NPL) cycle, global brokerage Morgan Stanley has said.


The firm in its report said that funding has been a key constraint for India’s financial sector, citing sluggish deposit growth and availability of funding to entities without strong parent companies is tight.


“Rating downgrades over the past few weeks at some NBFCs, HFCs, banks, real estate developers have increased risk of a new NPL cycle in India,” it said.


Morgan Stanley also highlighted increased concerns over loan growth for FY20 given moderation in consumer demand and challenged funding outlook.


The brokerage prefers large banks, with high weightage in the index. However, it is underweight or equal weight on most mid-sized banks and NBFCs.


“The large banks, namely ICICI, HDFC Bank, Axis and SBI are relatively much better placed given strong balance sheets. They are coming out an NPL cycle and sharply improved coverage ratios in FY19. Moreover, we note that their exposure to recently stressed sectors or corporates is relatively much lower,” it said.


The brokerage house has ‘Avoid’ call for smaller banks or NBFCs, which are facing funding pressure. “These entities have seen relatively higher growth in stressed sectors, and are more vulnerable to any new NPL cycle,” said Morgan Stanley in its report.


It is underweight on Yes Bank, Indiabulls Housing, IDFC First Bank and other state-owned banks (ex-SBI).