Fitch revises outlook on 9 Indian banks' IDRs from stable to negative

Action follows change in outlook on India's rating.

Global rating agency Fitch on Monday revised the outlook from “stable” to “negative” on the Long-Term Issuer Default Ratings (IDR) of nine Indian banks following revision in the outlook on India rating ('BBB-'). It affirmed rating on IDRs, Support Ratings (SR) and Support Rating Floors (SRF).

The rating action covers nine banks - State Bank of India (SBI), Bank of Baroda (BOB), BOB’s subsidiary in New Zealand, Bank of India (BOI), Canara Bank (Canara), Punjab National Bank (PNB), ICICI Bank (ICICI), Axis Bank (Axis) and Export-Import Bank of India (EXIM).

The IDRs for Indian banks are support-driven and anchored to their respective SRFs. They are based on assessment of high to moderate probability of extraordinary state support for these banks. This takes into account our assessment of the sovereign's ability and propensity to provide extraordinary support, Fitch said in a statement.

The rating action does not affect the banks' Viability Ratings (VRs). EXIM does not have a VR as its role as a policy bank makes an assessment of its standalone credit profile less meaningful.

On June 18, 2020, Fitch changed outlook on India to Negative from Stable due to the impact of the escalating coronavirus pandemic on India's economy.

The Negative Outlook on India's reflects an increasing strain on the state's ability to provide extraordinary support. The sovereign has limited fiscal space and there has been significant deterioration in fiscal metrics due to challenges from the Covid-19 pandemic, rating agency added.

Covid-19 relief: You can defer 3 EMIs but that may be a very costly option

SBI informed customers that in some cases, deferring 3 EMIs on a home loan may force the borrower to pay 8 more EMIs.

After RBI allowed commercial banks to provide their customers a moratorium of three months for repayment of term loans, public sector banks have sprung into action. Public sector banks have informed their customers about deferment of EMIs and interest dues to help soften the blow due the coronavirus crisis. The deferment may come at a price though.

The country's largest lender State Bank of India on Wednesday warned borrowers that deferment of equated monthly instalments (EMIs) offered under the RBI's relief package on account of COVID-19 could put an additional cost on them. The lender also advised borrowers to repay their loans if they are in a position to do the same.

SBI said on its website that deferring the EMIs for a home loan of Rs 30 lakhs with a remaining maturity of 15 years, the net additional interest would be approximately Rs 2.34 lakhs, which is equal to eight EMIs. In other words, if customers defers three EMIs then they will end up paying 8 EMIs more.

Last week, the Reserve Bank of India (RBI) gave a relief package for retail borrowers and businesses, by way of announcing a three-month moratorium on payment of all term loans due between March 1, 2020, and May 31, 2020.

The dispensation is aimed to mitigate the burden of debt servicing brought about by disruptions on account of COVID 19 pandemic and to ensure the continuity of viable businesses.

"In terms of RBI COVID-19 regulatory package, SBI has initiated steps to defer the instalments and interest/EMIs on term loans falling due between March 1, 2020 to May 31, 2020 and extended the repaymentperiod by 3 months. The interest on working capital facilities for the period March 1, 2020 to May 31, 2020 is also deferred to June 30, 2020," country''s largest lender SBI said.

Defensives versus high beta. What should your stock strategy be?

While JP Morgan believes 'cash is king' given the uncertainty that lies ahead, selective buying from a long-term perspective can be done in defensive plays.

With the frontline indices – the S&P BSE Sensex and the Nifty 50 – crashing over 35 per cent from their peak levels given the rampant spread of coronavirus (Covid-19) pandemic across the globe, most analysts remain cautious on the road ahead for the markets. Going ahead, they believe the markets will track developments related to the progress of the health scare and how effectively can the governments combat it.

That said, they do believe long-term investors with risk appetite and those who can digest volatility can start nibbling at stocks given the attractive valuations.

So, what should your stock strategy be? Is it better to allocate more towards defensives or look at high beta names that can deliver handsome returns once the markets recover?

While JP Morgan believes ‘cash is king’ given the uncertainty that lies ahead, selective buying from a long-term perspective can be done in defensive plays. Before investing, investors must evaluate companies carefully and put money in stocks of only those companies with strong balance-sheet and earnings visibility despite the Covid-19 health scare, they suggest.

“The backdrop of a sell-off across asset classes led by COVID-19 fears means our strategy is set with the primary objective of capital preservation with cash in hand until volatility recedes. We would be selective buyers within Indian equities, albeit with a defensive bias. Our preferred sectors are consumer staples, healthcare, large retail private sector banks and utilities,” wrote Rajiv Batra, Kevyn H Kadakia and Sahil Dhingra of JP Morgan in a recent report.

Private Banks, Reliance Industries, Infosys take Sensex to new high

The Nifty50, too, breached the 11,700 level for the first time since September 2018 to hit an intra-day high of 11,716.

A sharp rally in three private sector banks – HDFC Bank, ICICI Bank and Axis Bank – that have gained over 10 per cent each from their August 29, 2018 level helped the benchmark index S&P BSE Sensex breeze past the 39,000 mark and hit a new high on Monday. The benchmark index surpassed its previous high of 38,990 recorded on August 29, 2018 in intra-day deals.

The Nifty50, too, breached the 11,700 level for the first time since September 2018 to hit an intra-day high of 11,716.

Besides these three private sector banks, Reliance Industries (RIL), Infosys, Bajaj Auto, Asian Paints, HCL Technologies, Larsen & Toubro (L&T) and State Bank of India (SBI) have gained in the range of 4 to 9 per cent from their August 2018 levels and helped the 30-share index record a new high on Monday.

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“There is more steam left and I feel the S&P BSE Sensex can hit 40,000 levels before the election results are known in May. The optimism stems from the strong foreign flows that we are getting. India now seems to be an attractive investment destination for foreigners amid slowing global growth,” says G Chokkalingam, founder and managing director, Equinomics Research.

Among sectors, most analysts remain bullish on the banking space despite the recent run-up and suggest investors stay put with large private sector banks and good quality public sector plays.

A pick up in industrial activity that will spur corporate loans, aggressive recognition of bad assets and improving recovery that will help boost asset quality, softening credit costs that is likely to propel return ratios and burgeoning share of retail term deposits which is likely to provide long-term stability to the source of funds are the factors working in favour of private sector banks, say analysts at Edelweiss Research. Axis Bank and ICICI Bank are their preferred picks in this segment.

Meanwhile, 17 out of 31 stocks that comprise the S&P BSE Sensex are still trading below their August 29, 2018 levels, shows data. Tata Motors, Tata Motors DVRs, Mahindra & Mahindra and Maruti Suzuki India have lost over 25 per each on the BSE during this period.

Autos, analysts say, are under pressure with respect to their monthly sales numbers. At the same time, the inventory levels are also on the higher side, which they feel, will take some time to get cleared. However, with improving liquidity and decreasing rates, there could be support coming over the next few months.

WhatsApp to hasten payments services to 200 million Indians

The messaging app will partner HDFC Bank, ICICI Bank and Axis Bank to process the transfers, and State Bank of India will join once it has the necessary systems in place.

Facebook is set to offer its  WhatsApp payment  services to the whole of India as early as next week in an attempt to win market share, even though its partners aren’t all ready, said people familiar with the matter.



The messaging app will partner HDFC Bank, ICICI Bank and Axis Bank to process the transfers, and State Bank of India will join once it has the necessary systems in place, the people said.



Facebook  was aiming for a full rollout with four partners but decided to go ahead with just three as its rivals were racing ahead, the people said, asking not to be named as the information isn’t public.



The entry of Whatsapp into India’s payments space has been likened to WeChat, which reshaped payments in China when it expanded beyond messaging.



The pilot version of WhatsApp Pay — started with 1 million users in February — received rave reviews, threatening the market share of incumbents Google Tez and Alibaba-backed Paytm, which lack the benefits of a social network.



“WhatsApp has a great starting point: a monopoly in chat,” said Vivek Belgavi, leader for financial technology at PwC India. “High engagement makes it a credible competition.”



More than 200 million Indians already use WhatsApp messaging, equivalent to 60 percent of the US population and a daily active usage that Forrester estimates to be about 20 times higher than Paytm’s.




Emails to representatives of WhatsApp, State Bank of India, HDFC Bank, ICICI Bank and Axis Bank weren’t immediately answered.