Banks may see provisions double this year, says Morgan Stanley
Hindustan Unilever Limited, India’s largest consumer packaged firm, said the company is all set to go for rolling out the GST.
“I can tell you that we are very well prepared for implementing the GST that starts from midnight today,” chairman Harish Manwani said at the HUL annual general meeting on Friday. “We have a special task force that has been set up within the company and Mr. Balaji (chief financial officer PB Balaji) and his team has done an outstanding job.”
Manwani added that the company is working with members in the distribution chain to ensure a smooth transition.
“In fact, as we speak, I can tell you that Mr. Mehta was in Delhi yesterday representing the company to make sure we are in close touch not only with our suppliers, with our distributors and with our retailers,” Manwani said. “But we are also in close touch with the government to make sure we can land this as best as possible.”
Manwani added that the GST will be good for the country and for companies in the long run. In a press briefing for HUL’s quarterly results in May, CFO Balaji said the company expects to pass the benefits of the lower tax rates on to consumers.
Even as some banks assert about being resilient in the face of insolvency resolutions in 12 largest default accounts, foreign brokerage Morgan Stanley on Friday said it sees banks’ provisioning for those accounts doubling up from the current level.
The brokerage also warned that merging small and weaker PSBs with larger ones to help tide over their capital issues will be counterproductive for the acquiring banks. “We think provisioning on these loans is 30-40% currently and could increase to around 60%. This could imply 0.40-0.90% increase in credit cost for the system,” Morgan Stanley said in a note.
On merger plans, it warned that “government may look at merging small, weak banks with larger and relatively stronger banks.”
The brokerage warned that the state-run banks, which hold 70% market share, do not have the ability to take higher provisions and given government’s tightness on funds, only the large ones could be able to access capital from the markets.