Nearly all major banks are affected either by the slowing down of retail credit or by rising NPAs
ICICI saw fresh bad loans worth ₹7,231 cr in the June quarter, of which ₹6,773 was in the retail segment
Stress among India’s retail borrowers brought about by the second wave of the pandemic has hurt most major lenders either in the form of higher delinquencies or lower appetite for fresh loans in the June quarter.
This is contrary to what was being predicted about the second wave, with expectations that it would be worse from a health perspective than financially. As it now emerges, the disruption in income generation due to the second wave has had a deep impact on repayment capabilities of smaller borrowers.
The impact has been quite secular and across the board. Lenders such as HDFC Bank, ICICI Bank, Axis Bank and Yes Bank were affected either by the slowing down of retail credit or by rising stress.
At ICICI Bank, loans worth ₹7,231 crore turned bad during the quarter. Out of those, ₹6,773 crore was from the retail and business banking portfolio or small business segment. This included ₹1,130 crore from the bank’s jewel loan portfolio.
The bank disclosed that for fresh slippages in its retail and business banking, the proportion of mortgages was similar to FY21 and while the commercial vehicle and equipment loans was higher, the proportion of personal loans and credit cards was lower.
“The second covid-19 wave has disrupted collections, leading to elevated slippages in the retail and business banking portfolio. However, the management (of ICICI Bank) is confident of improved asset quality trends over FY22, mainly from second half onwards," analysts at Motilal Oswal said in a 25 July report.
Asset quality at Axis Bank also deteriorated sequentially as gross non-performing assets (GNPAs) as a percentage of total advances stood at 3.85% as on 30 June, up 15 basis points (bps) from the March quarter. The bank said 84% of its slippages in the June quarter originated from the retail book. Gross slippages during the quarter were at ₹6,518 crore, up from ₹5,285 crore in the March quarter and ₹2,218 crore in the June quarter of the previous year.
The lack of a moratorium this time seems to have made it worse for banks as mobility restrictions hit collections in April and May. Bank managements have indicated that a recovery is being witnessed in June and July and if the third wave is thwarted, business recovery would be inevitable.
“In the near term, the repayment capabilities of a few customer segments were impacted because of medical exigencies or lockdowns. We, therefore, expect a greater impact on the retail segment than the corporate banking across the financial services sector because of the second wave," said Amitabh Chaudhry, chief executive, Axis Bank.
Private sector lender Yes Bank also saw stress piling up in its retail portfolio in the June quarter. Compared to the March quarter, the GNPA ratio rose 40 bps to 3.3% of retail assets. That apart, retail loans that were overdue between 61-90 days rose to ₹790 crore in the June quarter, from ₹234 crore in the March quarter and ₹513 crore in the June quarter of the last year. Loans turn non-performing if repayments are not made within 90 days of the scheduled date.
“This is quite understandable because of the kind of impact the pandemic had on the entire nation during April and May when the foremost priority was to save lives. This and the lockdowns have definitely impacted the earning capacity," Prashant Kumar, chief executive of Yes Bank, said on 23 July.
Kumar said the situation is improving. “We expect that these accounts would not turn into NPAs as collection efficiencies are improving. This is a one-off thing," he said.
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