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MOSL: FINANCIALS-Credit quality outlook improving, rating upgrade momentum intact

Financials: Credit quality outlook improving, rating upgrade momentum intact; Sustained growth in retail and improving trend for corporate loans  

 

CRISIL Ratings hosted a call to discuss the credit quality trends in FY19 and the outlook ahead. The discussion revolved around a range of topics, including (a) credit trends and its primary drivers, (b) the fundamental outlook for key sectors, (c) the credit ratings trend of the corporate sector and (d) the impact of the recent Supreme Court judgement on the RBI’s Feb-12 circular. Key takeaways: 

Expect credit growth at ~14%, PSBs to return to profitability in FY20

• CRISIL Ratings expects credit growth of ~14% YoY in FY20, driven by sustained growth in retail and the improving trends in SME/corporate loans. It expects growth of 20% YoY in retail loans, 10-12% YoY in SME & corporate loans and 5-7% YoY in agri loans. In corporate, it expects strong demand for working capital loans.
• Also, CRISIL expects PSBs to return back to profitability in FY20 after four straight years of losses. Overall, it expects the banking sector RoAs to improve. 

Sector outlook: Challenges continue in power, telecom, real estate; stable trends in metals, construction, retail

• Investment-linked sectors such as thermal power producers, telecom and real estate will continue facing challenges, while steel, construction, cement, pharma and organized retail remain stable, driven by an increase in infrastructure spending by the government, stable commodity prices, etc.
• Export-linked sectors are likely to benefit from INR depreciation and the support from the GST. However, sectors like gems & jewellery are facing disruption.
• Consumption-linked sectors like consumer and auto will continue benefiting from rising private consumption and fresh demand.