A few banks and non-banking finance companies are likely feel the rub down effect of Kerala floods as several businesses and activities in the state are impacted, according to a report by research firm Emkay. It also expects some impact on automobile and tyre companies.
“The main impact for lenders could be in the form of accretion in fresh slippages and rise in credit costs (especially for SME/MSME/retail) along with weakening credit growth profile,” the firm said in the report.
Emkay said Federal Bank, South Indian Bank, Muthoot Finance and Manappuram Finance would be impacted.
Federal Bank remains at the major risk due to this unforeseen event with 34% of lending and 64% of deposits directly linked to Kerala.
“….62% of Kerala-based deposits are contributed by bank’s NRI customer base. Out of Kerala-based lending book, 51% was to corporate, 28% towards SME/MSME and 21% were to retail segment,” it added.
Emkay saw rising risk of default in all this segments. This could see potential delay recoveries along with spike in credit costs.
South Indian Bank is yet another Kerala-based bank with total lending exposure of 41% to the state. “Out of this Kerala-based lending, 42% of exposure is towards SME/MSME which remains at higher risk,” it added.
For Muthoot Finance, specific exposure to the state is undisclosed. However, 15% of its branch network is in Kerala with 50% of lending book is contributed by Southern states, Emkay said.
For Manappuram Finance, 15% of gold loan branches and 7% of micro finance branches are located in Kerala. Also on blended basis, 52% of total lending book is contributed by Southern states, the report said.
Among large banks, State Bank of India (SBI) would have considerable exposure considering one of the merged associate bank, State Bank ofTravancore (SBT), was originated from the state with significant exposure to direct agriculture and related sectors, Emkay noted.
Among private banks, the firm said it would remain relatively concerned towards HDFC Bank considering their healthy agri exposure.
In a separate report, Emkay said there would be near-term volume and margin concerns for automobile and tyre companies.
In the automotive sector, near-term sales volume is likely to be impacted across segments (Kerala accounts for 8%, 5%, 4% and 3% of volume in passenger vehicles, 3-wheeler, 2-wheeler and commercial vehicle, respectively), it noted.
According to the report, in the tyre sector, lower natural rubber production (Kerala contributes 85% to domestic rubber production) is likely to result in a shift towards costlier imports.