CLSA downgrades PSU banks on asset quality concern

The consequence of an economic slowdown has begun to show on banks’ asset quality.

Indian lenders are now expected to record higher non-performing assets though the trend will differ from bank to bank depending on certain factors like exposure to high risk sectors, restructured loans and aggression in growth in past few years, says international brokerage CLSA.

This is what the CLSA report said:

“Banks with high restructured loans and those with higher exposures to sectors like infrastructure, real estate and textiles could report sharper rise in NPL. Private banks are better placed than PSUs due to lower exposure to risky sectors like SME, textile, infrastructure and higher share of retail- led by mortgage. Moreover, their superior profitability along with higher NPL coverage will cushion earnings against the risk of rise in credit costs.”

This clearly gives an edge to private sector banks over their peers in public sector space. The brokerage downgraded some frontline PSU banks including Punjab National Bank , Bank of India ,Canara Bank , Corporation Bank , Oriental Bank of Commerce , and Union Bank of India , to "underperform". India’s largest lender the State Bank of India was already downgraded to underperform due to higher share of stressed asset portfolio and premium valuations.