ICICI Direct - Sector Update - Banking and Financial Services

The past few months have been eventful from a banking sector perspective as many important announcements and developments have taken place with the view of enabling a faster recovery in the sector. Key events include budgetary announcement of formation of bad bank in order to reduce NPA burden of large banks, formation of Development Financial Institution (DFI) to help infra lending, privatisation of PSU banks and the Supreme Court's order to quash standstill asset classification norms, pleas seeking complete interest waiver and extension of moratorium. Extension of ECLGS till June 30, with further increase in scope, is also positive for the MSME segment and, thereby, growth and asset quality.

Optimism stems from a faster-than-expected revival in the economy and various positive developments in the banking sector. However, a resurgence of the pandemic may put the brakes on growth momentum and delay a recovery. Hence, some caution on this front is warranted. Improving repayment rates, collection efficiencies and credit offtake seem promising. We prefer large private banks given adequate capital and liquidity, which makes them well paced to garner incremental market share. Contingency buffer enables safeguarding against hiccups in asset quality. We recommend Axis Bank, HDFC Bank among banks and SBI Life among non-lenders.

For details, click on the link below: https://www.icicidirect.com/mailimages/IDirect_Banking_SectorReport_Apr21.pdf

Source : Equity Bulls

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