Credit Suisse cuts target for top Indian banks due to increased slippages, credit costs

SUMMARY

The extensions of coronavirus-induced lockdown and unimpressive fiscal stimulus would lead to further increase in slippages and credit costs for the Indian banks. With the extended moratorium and Rs 3 lakh crore government package for SMEs, which would help in pushing back SME NPAs, will also increase slippage and credit costs for FY22E, Credit Suisse said. Due to increased slippage and credit costs, the brokerage has cut FY21/22E earnings and target price of banks by 10-20 percent.

By Ankit Gohel May 28, 2020 3:42:31 PM IST (Updated)

HDFC Bank: Credit Suisse believes HDFC Bank is better placed on capital buffer and risks from moratorium book. The stock has seen around 30 percent correction from its December peak and valuations are attractive at 2.3x 24-month forward P/B. HDFC Bank remains Credit Suisse's preferred pick in the sector.Rating: Outperform. Target Price cut to Rs 1,100 from Rs 1,280.

ICICI Bank:The bank’s strong deposit franchise and asset quality outcomes are likely better than industry, Credit Suisse said. It expects FY21E/22E credit cost for the bank to come in at 220 bps/160 bps, respectively. Rating: Outperform. Target Price cut to Rs 390 from Rs 450.

Axis Bank: The brokerage believes there is a potential risk of sharply declining asset quality in both the corporate as well as individual segments of loan books. Given higher credit costs, the brokerage cuts FY21/22E earnings by 11-23 percent. Rating: Outperform. Target price cut to Rs 450 from Rs 520.

State Bank of India: "While a merger overhang and call for national service will keep SBI multiples under pressure, the stock has already derated to 0.5x FY22 book value. Given higher credit costs, we cut FY21/22E earnings sharply by 32-90 percent," Credit Suisse said. Ratings: Outperform. Target price cut to Rs 200 from Rs 250 based on 0.4x core P/B and value for its subsidiaries.

Kotak Mahindra Bank: The brokerage expects market share gains to accelerate for large private banks given their strong capital and liquidity position. While Kotak appears adequately capitalised with CET at >19 percent, particularly given the pull-back in loan growth, management has taken approval to raise capital of $1 billion, it said. Credit Suisse has cut the bank’s FY21E/FY22E EPS by 10 percent on higher credit costs and muted growth. Rating: Neutral. Target Price cut to Rs 1,150 from Rs 1,250.

IndusInd Bank: Credit Suisse expects IndusInd Bank’s margins to contract given its high share of loans to affected segments (MFI, CV). The bank also has a high share (>30 percent) of loans in BBB book which could be at risk, it said. Rating: Underperform. Target price cut to Rs 350 from Rs 430.