Ahead of the start of the earnings season, the brokerage said unsecured loans and loans against property are the most important segments for the private sector players.
The brokerage prefers banks with greater provision buffers and has a buy rating on SBI, ICICI Bank, and Axis Bank.
and are the least preferred names. UBS has a sell rating on both the banks and has a neutral stance on Federal Bank, IndusInd , HDFC Bank and Bank of Baroda.
“While we expect a gradual recovery in economic growth, a sustained economic slowdown could impact the banking and finance sector on several fronts – this may lead to a slowdown in credit, increase NPL risk, impact fee income and exert pressure on NIM,” said UBS.
The brokerage said competition from other financial savings products such as mutual funds, insurance, could slow deposit accretion for banks, leading to intense competition for deposits, which, in turn, could put pressure on margins of banks growing loans faster than the industry.
“Provisions could be higher than expected if the economic slowdown due to Covid-19 is extended further or the NPL resolution process is extended and haircuts are higher than our current estimates,” said the UBS report.
