Morgan Stanley feels large banks are relatively less exposed to IL&FS, telecoms, NBFCs,and real estate.
Bigger banks have shown good improvement in asset quality in the quarter ended December 2018. After a couple of years of concerns, Q3 performance has given confidence to analysts to project a strong turnaround in FY20 earnings.
Global research house Morgan Stanley views 2019 as the year of big banks given moderating credit costs with pre-provision operating profit (PPoP) acceleration and pickup in deposit market share.
The research house highlighted a continuing improvement in asset quality, with bad loans ratio moving lower to around 10 percent of loans against around 12 percent in FY18 and coverage improving to more than 50 percent versus around 45 percent. This should drive moderation in credit costs to 90-125bps in FY20, it said in a report.
It further said liquidity position of banks is also strong, with liquidity coverage ratio at around 120-140 percent. An increased focus on retail term deposits is driving deposit growth acceleration with large private banks' incremental deposit market share at over 30 percent in FY18-19.
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