In this week’s episode, Vishal Goyal from UBS Securities discusses the significance of credit costs and their impact on the banking sector and how Indian banks are faring among their APAC peers.

The discussion takes a look at the fact that credit cost is the primary factor influencing the valuation of banks and can lead to substantial value destruction. By examining stocks where credit costs have remained high for an extended period, it is indicative that shareholder value has significantly suffered.

On the other hand, banks that have excelled in managing credit quality, particularly in credit card portfolios, have experienced compounding benefits over time.

Regarding the current cycle, Goyal acknowledges that it may be unique due to the unprecedented plateauing or decline in credit costs. However, he suggests that there is often calm before another round of turbulence. The presence of uncertainties is felt around

Goyal breaks the current banking cycle down into distinct periods, such as stage one, stage two, and stage three. The cleansing period, or stage three, involves banks recognizing stress and creating credit costs. Subsequently, credit costs gradually decline, falling below or near average levels, leading to stage two, which presents the most lucrative opportunities for profit.

Listen in to the full discussion to know more!