Large Indian banks were already under the burden of economic slowdown — way before COVID-19 pandemic hit the banking system. There was a significant credit crunch in the system. While things have gotten worse, there are hope things will get better. According to Morgan Stanley Research, within 12-15 months, banking activities will normalise.
Find out what changes will happen in the Indian banks, as per the research firm:
- The earnings normalisation will take place over the next 12 months for large private banks. It can be said that the banks will recover from the COVID-19 economic impact gradually, but the earnings for large private banks in the second half of 2021 will be down. Starting from the fourth quarter of FY 2020-21, loan disbursements will pick up as economic activity normalises.
- In the coming 12 months, most banks will make provisions for non-performing loans (NPL). This provision of bad loans have already started by banks but it is not very clear where the bad loans stand considering the moratorium angle exists here. Furthermore, large private banks have strengthened their balance sheets after recent capital raisings.
- The research firm stated the growth in revenue should rise in FY 2021-2022, led by an accelerated pace of market share gains. There is enough scope for banks to gain market share as the economy stabilises. The market share of large private banks can rise from 17 per cent to 20 per cent in FY 2022-2023.
- At present, the valuations of large private banks are 10-40 per cent below the 5-year average. But the valuations will also improve, the firm stated. It stated it expects 30-40 per cent rise in share prices over the next 12-15 months
