Mid & Small Size bank Stocks: The focus of small and mid-size banks is on improving asset quality by improving their balance sheets. Like large-cap banks, mid and small size banks have also started focusing on retail loans instead of corporate and SME loans. It is also visible from the December quarter results that the NPA has already improved. After COVID-19, banks have now increased their provisioning or capital buffer, which will help in dealing with any such shock in the long term. During the results, the management commentary of some banks has been positive and most believe that the pressure on asset quality is reducing and in the near term it will decrease further. According to brokerage house MK Global, some mid and small size banks are seeing good growth in the coming days.
Provisioning / capital buffer
According to brokerage house MK Global, most mid- and small-sized banks have increased provisioning or capital buffers in view of COVID 19. At present, this can bring pressure on the capital, but for long term it is a better solution. This buffer will help in dealing with any shock like COVID 19 in the long term. Federal Bank, CSB, Equitas Finance Bank and Ujjivan Small Finance Bank have done the provisioning. While the provisioning of SIB is the lowest. According to Brokerje, this will certainly increase the provisioning cast, but the earning volatility will decrease. The market condition of banks will improve.
Corporate stress is decreasing
The management commentary of the banks shows that the corporate loan stress is now decreasing. Banks are engaged in reducing SME stress in term. At the same time, the focus of banks has increased on the realization. Brokerage says that the restructuring rate of mid- and small-sized banks is higher than that of large-cap banks. Gold loan has once again emerged as a preferred product. Increasing demand for affordable housing is also in the favor of banks. This segment will benefit from all this.
Which shares will gain momentum, who should stay away
Brokerage house MK Global says that in the coming days, Federal Bank, City Union Bank and Equitas Small Finance Bank may perform better. However, DCB Bank and Ujjivan Small Finance Bank have advised to stay away from the shares.