Gross non-performing assets (GNPA) in the banking system have declined for the second consecutive half year, while credit growth is picking up, the Reserve Bank of India (RBI) said in the half-yearly Financial Stability report. Gross NPA ratio declined to 9.3% as of March 2019. It was 10.8% in September 2018 and 11.5% in March 2018.

Above GNPA was much below from what RBI has anticipated a fall to 10.3% by March 2019. GNPA could further decline to 9% by March 2020, the macro stress tests indicated.

Earlier, Bad loan recognition accelerated largely due to a nudge from the Reserve Bank, which wanted bank balance sheets to reflect a true picture of the stress. The RBI’s asset quality review led to a massive spike in NPAs, and was supported with the enactment of the bankruptcy law for resolving the cases. However, the progress on the bankruptcy cases has not been very fast as the legal provisions keep getting challenged frequently and the lack of precedents results in delays in arriving at resolutions due to legal tangles. 

Various Internal & External factors contribute to Increase in NPA in the banking system.

External Factors:-

a) Bankruptcy law still not effective b) Ineffective recovery tribunal c) Willful Defaults d) Natural calamities e) Industrial Sickness f) Lack in Demand g) Change in Govt Policies

Internal Factors:-

a) Defective lending Process b) Inappropriate Technology c) Improper Swot analysis d) Managerial deficiencies e) Poor credit appraisal system f) Absence of regular industrial visit

Indian Banks has to focus on the above issues to substantially bring down NPA’s in the coming future.

Big Question…Is it right time to invest?

The revival of Indian Economy is not possible without the participation of the banking sector.  Banking stocks are having the highest Market capitalization in Nifty Index & BSE Index. In the near term, for the private banking space, competition landscape has become better. NBFCs have become weaker and PSU banks are slowly reviving. The woes of asset quality are behind the large private sector banks. They don’t have a dearth of capital and this has helped the run-up in the banking segment.

Again due to the NBFC crisis, few private & public banks were able to grab up this high quality selected lending books from NBFC.

One can go for long term horizon with private banks & very selective public sector banks.

Happy Investing !!!

CA Tapan Doshi – (M) 919726483113, Email id-tapydoshi@gmail.com

Investor Advisor – Stock Broker – Kotak Securities Franchise

NBFC (Non Banking Financial Company) lending which is considered as a shadow banking of economy is in a severe crisis. After 1 year of NBFC crisis, there are many questions arise in Investor mind. Is NBFC crisis going to over in near term? or it is a prolonged problem ? or it complete extinctions NBFC sector? Questions are many but there are no clear answers.

Let us understand what led to NBFC crisis :

• One of the main source of funding of NBFC is Banks & Mutual Funds. They borrow Short Term & lend for Long Term. Which always led to asset liability mismatch.
• NBFC lent to developers of long-term projects, which got held up because of various factors. Trillions of rupees are locked in real estate, construction, and infrastructure projects.
• Corporate Governance issues popped up in many NBFC .
• The promoters, who had pledged shares of their firms to borrow money, are neither able to borrow more to complete projects nor sell them to others.  They are entering into “standstill agreements” with banks and mutual funds to ensure those shares are not sold and they continue to run the firm.
• Due to Liquidity squeeze, the cost of borrowing of NBFC shot up & as a result, their margin got squeezed. Small NBFC not able to lend as cost of borrowing started increasing.
• Banks & MF started cutting their exposure & lending to NBFC due to a Liquidity crisis

Steps taken by RBI ?

While interventions by the Reserve Bank of India are helping Indian credit markets regain some normalcy. The RBI has pumped a huge amount of liquidity into the system over the last eight months. It has also eased some norms to give NBFCs more room in fundraising. 

What should Investors do during this crisis?

An Investor has no need to panic, but certainly, a reason to be watchful.  A “liquidity crisis” forced non-bank lenders and housing finance companies to rely heavily on selling down loans for funds to Banks. As a result, many private Banks with strong balance sheets are able to take advantage of this crisis. Private Banks will benefit from this crisis. Also bigger NBFC with strong balance sheet will become bigger. Investors have to keep in mind all these relevant factors before investing in NBFC.

Happy Investing!!!

CA Tapan Doshi – (M) 919726483113, Email id-tapydoshi@gmail.com

Investor Advisor – Stock Broker – Kotak Securities Franchise

Good Morning….

3 Stocks (DHFL, Reliance Capital & Yes Bank) in recent times is being darling to the Short Sellers community. They love those stocks!!!! Why? Because any news that comes they just have to short it. One of the reason for all these 3 stocks to fall is Promoter Holding, Large Debts & Liquidity Issues.

Yes Bank is having a significant loan exposure to DHFL & Reliance Capital. So any Asset deterioration in DHFL & Reliance capital is going to affect YES Bank share price significantly. Yes Bank is in urgent need of Equity Capital Top up in order to restore faith among Investors. Again many downgrades from Global Brokerages is adding to its woes.

DHFL & Reliance capital is literally facing their existence issues. DHFL unless any creditable firm takes over it will tough to continue the business. Similarly, Reliance is selling its core business left, right & Centre. It has to resolve its large debt problems in order to bounce back.

Any Investor has to keep the above points in mind before investing….Happy Investing!!

CA Tapan Doshi – (M) 919726483113, Email id-tapydoshi@gmail.com

Investor Advisor – Stock Broker – Kotak Securities Franchise

Thanks for joining me!

Good company in a journey makes the way seem shorter. — Izaak Walton