UBS has flagged increasing non-performing loan (NPL) risks for commercial vehicle (CV) and business loans, citing a significant deterioration in early delinquencies. Early delinquency rates for CV loans rose by 150 basis points (bps) in October 2024 compared to March 2024, particularly among mid-sized private banks and non-banking financial companies (NBFCs). Similarly, business loans saw a 70 bps uptick during the same period.
Static pool analysis of recent disbursements further indicates worsening portfolio quality. UBS has raised its credit cost estimates by 2–25 bps across lenders.
Target Price Adjustments:
- IndusInd Bank: Target price cut to ₹1,150 from ₹1,350; FY25/26 EPS estimates reduced by 5–6%. Rating maintained at Neutral.
- Axis Bank: Target price lowered to ₹1,210 from ₹1,250; Neutral rating retained.
- AU Small Finance Bank: Target price cut to ₹640 from ₹750; Neutral rating maintained.
Top picks in the banking space include HDFC Bank, ICICI Bank, and Federal Bank. Among NBFCs, UBS raised credit cost estimates by 1–20 bps for Bajaj Finance, Cholamandalam, Shriram Finance, and Mahindra Finance, leading to a reduction of FY25/26 EPS forecasts by 1–7%.
