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Small businesses and retail borrowers remain a concern for banks amid the coronavirus crisis even as corporate borrowers gradually exit the loan moratorium, Reserve Bank of India data showed.

According to the central bank’s Financial Stability Report released on Friday, 65.3% of small business loans and 56.2% of retail loans were under moratorium as on 30 April, against only 39.1% of corporate loans.

A clearer picture will emerge when the numbers for the subsequent months are released; however, the retail segment, considered a safer bet for long due to its wider distribution of risk, may not remain so forever.

“Given the fact that the impact of the moratorium is still uncertain and evolving, the exact nature of how the same will play out on the quality of banking assets is difficult to ascertain accurately," RBI said on Friday.

A 23 June report by Centrum Broking Ltd said given the job losses and pay cuts, personal loans are likely to be the most impacted among retail loans, followed by credit cards, which are often the last in payment priority.

Early indicators of asset quality in mortgages and credit cards have been weak for the last one year, making them vulnerable to asset-quality shocks, said an Emkay Research report, citing data from credit bureau TransUnion Cibil.

“Apart from these segments, we believe delinquencies in personal loans, two-wheelers and commercial vehicle, too, may accelerate, which coupled with slower credit growth, will shoot up NPAs," the 12 July report added.

According to RBI data, the gross bad loan ratio for retail loans has increased in the six months from September 2019 to March 2020.

While retail delinquencies rose 20 basis points (bps) to 2% in March, this is before the full force of the coronavirus pandemic hit. However, the bad loan ratio for industries declined 320 bps points to 14.1% in March. One basis point is one-hundredth of a percentage point.

In the last couple of months, bankers have warned of growing stress in the retail segment, though not necessarily as a reaction to the covid-19 crisis. Sanjiv Chadha, chief executive, Bank of Baroda, said on 11 May that early signals of stress in retail loans were present even before covid-19 came along.

“There is no doubt that this portfolio is going to be vulnerable because the kind of instruments you have to craft a customized solution is not available for retail as they are for industrial borrowers, large corporates and MSMEs. Therefore, we are going to have challenges there," Chadha had said.

Coupled with lower demand for retail loans, this could haunt bank balance sheets in the days to come. For instance, India’s largest private sector lender HDFC Bank has seen retail loan origination decline 70% during the June quarter.

“The personal loan book contributed to the biggest impact, a drop of 86% in origination, both a combination of our own credit policy tightening actions that we took early on in the prior quarter itself," Srinivasan Vaidyanathan, chief financial officer, HDFC Bank told analysts on 18 July.

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