The banks are preparing to make full provision in Q4FY21 as they await government clarity on who will bear the burden of interest on interest waiver after the Supreme Court (SC) order. Krishnan ASV, Lead Analyst for BFSI at HDFC Securities shared his views in an interview with CNBC-TV18.

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“Interest-on-interest for banks was not a surprise. There is a lot of elbow room for banks. Q4 itself having to take a hit is not a surprise. How much of that hit will be borne by the government – still no one has an answer. That number is going to be about Rs 6,000 crore for the industry. Even all of that was to be absorbed by the banking system, that is about 1.5 percent of the pre-provisioning profits,” he said.

He expects the waiver of interest on interest would not lead to accounts becoming vulnerable or turning into non-performing assets (NPA). He remains little more conservative on asset quality now.

“The street has been building in a fair amount of optimism. We were a little more conservative but the kind of run up that we have seen in stock prices, you have to assume that asset quality will normalise faster than what it would have been otherwise. So we have generally been a little more conservative on asset quality compared to the rest of the street. I don’t see we will make too many adjustments to those numbers.”

Among banking and financial stocks, Krishnan picks banks over NBFCs and within banks, larger banks over mid-sized banks. He sees little more upside for banks at the current valuations.

“We believe there is a margin of safety in ICICI Bank and State Bank of India (SBI) because of the kind of correction that we have already seen. So we are happy to hold our estimates there and we believe there is a little more comforting upside that is now available at these levels,” he said.

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(Edited by : Ankit Gohel)

First Published:Apr 8, 2021 12:09 PM IST