The impact of the worst floods in 100 years for Kerala may not be limited to the Southern state alone. If listed companies are affected, your investments in them by way of shares, mutual funds, unit-linked insurance plans and debt securities stand a chance of being negatively impacted. Banks, gold loan firms, NBFCs, and general insurance companies are the first ones that will get affected due Kerala floods. Let us have a detailed look.
Banking and NBFCs: Unless you have been living under a rock, you may have read, seen or heard about the flood and landslides leading to unforeseen miseries and chaos in Kerala. It is a catastrophe. And like all catastrophes, this event would impact several businesses and agriculture activities within the state.
First and foremost, the rub down effect of the Kerala floods is expected to be felt on some banks and NBFCs having sizeable exposure in the state.
Do bear in mind that if people are displaced, businesses destroyed and livelihoods wiped out, the credit side of the BFSI business will see a huge impact.
The main impact could be in the form of accretion in fresh slippages and the rise in credit costs, especially for SME/MSME/retail. Also, banks and NBFCs are likely to experience a weakening credit growth profile.
Coming to specifically listed companies, Federal Bank remains at the major risk. The lender has an estimated one-third of lending and more than two-thirds of deposits directly linked to Kerala. Of the bank’s Kerala based lending book, over half is to corporates, but a significant portion is towards SME & MSME as well as retail who are most vulnerable. A rising risk of default in all these segments and likely potential delay in recoveries along with a spike in credit costs will negatively affect earnings.
South Indian Bank is yet another Kerala based bank. It has a total lending exposure of about 40% to the state. Of this Kerala based lender, a big chunk of exposure is towards SME/MSME which remains at higher risk just like in the case of Federal Bank.
NBFCs are also at risk. For Muthoot Finance, about 14-15% of branch network is in Kerala. Impact on branch network, collections and recovery will be tough amid floods and also beyond that.
For Manappuram Finance, again about 15% of gold loan branches and less than 10% of MFI branches are in Kerala.
Among large banks, State Bank of India (SBI) would have considerable exposure. This is because one of the merged associate banks, State Bank of Travancore (SBT) originated from the state. There are no hard numbers but SBT business will have significant exposure to direct agriculture and related sectors. One also must look at private sector banks like HDFC Bank and ICICI Bank given their credit exposure at the retail level.
Insurance impact: Among general insurance companies, there are four companies listed on Indian markets. These are General Insurance Corp, ICICI Lombard, HDFC Standard Life and ICICI Prudential Life. Any disaster of Kerala floods proportion will lead to claims, not just from individuals but also corporates. This impact will be felt more on the non-life insurance side. The 2015 Chennai foods, which was limited to one city, led to over Rs 5,000 crore insurance claims. The floods in Kerala, which have affected a much bigger landscape, will lead to a much bigger insurance claim amount.
Kerala also is a big rubber sourcing market for tyre companies. Since the state is in disarray, cost of sourcing rubber for tyre makers may rise as supply could be hit.
Plus, keep an eye out on South India focussed cement companies who have considerable exposure to Kerala consumers.