Private banks under-reporting NPAs may lose premium edge
Investors will now look at Yes Bank, ICICI Bank and Axis Bank with a different lens after they under-reported their NPAs by 1% to 4% in the fiscal ended March 2016.
By Joel Rebello, ET Bureau | Updated:
Mumbai: The big divergence between the non-performing assets (NPAs) reported by some private sector banks and those assessed by the RBI will reduce the premium these banks command among investors and will increase the gap between them and their tier I counterparts, analysts said.
Investors will now look at Yes Bank, ICICI Bank and Axis Bank with a different lens after they under-reported their NPAs by 1% to 4% in the fiscal ended March 2016. On the other hand, HDFC Bank, Kotak Mahindra Bank and IndusInd Bank are much better placed with low NPAs even after the RBI assessment.
Analysts said the gap between top tier private sector banks like HDFC, Kotak and IndusInd and the rest of the pack will now widen. “For the past decade, HDFC Bank and Kotak Mahindra Bank were quoting at a premium to the likes of Yes Bank, Axis Bank and ICICI Bank,“ said Viraj Gandhi, head, banking and financial services, Samco Securities. “That had changed in the last few months because of a general risk-on scenario and as investors had quoted banks like Yes on a premium, noting their stable asset quality. Now all that will change and we will go back to normal times, which means that HDFC, Kotak and IndusInd will command a premium.“
In its annual report, Yes Bank said RBI audit for the fiscal ended March 2016 pegged gross NPAs at 5.6% compared with 0.9% declared by the bank. Earlier, declarations by ICICI Bank and Axis Bank pegged NPAs after RBI audit at 7% and 4.5% respectively , higher than the 1.78% and 5.85% reported by both these lenders. “These divergences have put credibility of these bank numbers back to the forefront. Investors will now ask more questions from this banks, which means they will be trading at a discount to their recent prices,“ said an analyst. Yes Bank will be in the spotlight as it had not disclosed this discrepancy earlier. “The concern is that some investors had doubts on the quality of Yes Bank's loan book.
Although the bank managed to recover a substantial part and keep profitability intact in FY17, investors will question the reliability of 1.5% gross NPAs reported for FY17,“ Suresh Ganapathy , analyst, Macquarie Securities said.
Investors will now look at Yes Bank, ICICI Bank and Axis Bank with a different lens after they under-reported their NPAs by 1% to 4% in the fiscal ended March 2016. On the other hand, HDFC Bank, Kotak Mahindra Bank and IndusInd Bank are much better placed with low NPAs even after the RBI assessment.
Analysts said the gap between top tier private sector banks like HDFC, Kotak and IndusInd and the rest of the pack will now widen. “For the past decade, HDFC Bank and Kotak Mahindra Bank were quoting at a premium to the likes of Yes Bank, Axis Bank and ICICI Bank,“ said Viraj Gandhi, head, banking and financial services, Samco Securities. “That had changed in the last few months because of a general risk-on scenario and as investors had quoted banks like Yes on a premium, noting their stable asset quality. Now all that will change and we will go back to normal times, which means that HDFC, Kotak and IndusInd will command a premium.“
In its annual report, Yes Bank said RBI audit for the fiscal ended March 2016 pegged gross NPAs at 5.6% compared with 0.9% declared by the bank. Earlier, declarations by ICICI Bank and Axis Bank pegged NPAs after RBI audit at 7% and 4.5% respectively , higher than the 1.78% and 5.85% reported by both these lenders. “These divergences have put credibility of these bank numbers back to the forefront. Investors will now ask more questions from this banks, which means they will be trading at a discount to their recent prices,“ said an analyst. Yes Bank will be in the spotlight as it had not disclosed this discrepancy earlier. “The concern is that some investors had doubts on the quality of Yes Bank's loan book.
Although the bank managed to recover a substantial part and keep profitability intact in FY17, investors will question the reliability of 1.5% gross NPAs reported for FY17,“ Suresh Ganapathy , analyst, Macquarie Securities said.
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