Operating buffers of top 5 banks to fall 15%: Ind-ra

The operating buffers — preprovisioning operating profit (PPOP) — of the top five private sector banks in India could decline by up to 15 per cent on a year-on-year basis in FY21. This may affect the ability of banks to withstand credit costs without capital erosion, according to India Ratings (Ind-ra).

Of the top five private banks, Ind-ra rates HDFC Bank, Axis Bank, Kotak Mahindra Bank and Indusind Bank.

The fall could be due to a variety of factors like lower portfolio yields caused by an increase in slippages, lower loan growth due to slow originations and limited enhancements. Ind-ra said higher liquidity deployed in low-earning government securities or under reverse repo is another factor that may impact capacity.