NEW DELHI: Current interest rate trends and the ongoing turmoil in the non-banking financial sector in the wake of the IL&FS crisis is set to give a boost to large banks, particularly private ones. According to a Morgan Stanley research note, with interest rates in India steadily rising, banks with high liquidity have seen increasing preference.
“The IL&FS default and subsequent pressure on NBFCs are likely to make this shift quicker and starker,” the report noted. The financial services firm pointed out that it expected large banks - HDFC Bank, ICICI Bank, SBI, and Axis Bank - to accelerate loan growth and improve spreads for both assets and liabilities over the next three years.
Apart from the higher rate trend and NBFC turmoil, the firm added that better retail funding bases and digitisation initiatives are other key favourables for large banks. “These banks were doing well, but liquidity advantage should fuel further acceleration in PPoP (pre-provision operating profit) growth,” it said.
Morgan Stanley now expects compounded annual growth rate in PPoR for financial years (FY) 2018-19 to FY 2020-21 to rise to 24 per cent from 21 per cent earlier. Among large banks, private banks are seen benefiting more.
“State-owned banks (SOE) have excess liquidity but are unable to lend given low capital. The big winners are likely to be large private banks, which were constrained by liability growth trailing asset growth,” the report said. While an infusion of growth capital can help SOEs, mid-sized or small banks are facing higher funding cost and slower growth.
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