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The National Automated Clearing House, a clearing service for interbank transactions run by the National Payments Corp of India, showed cheque bounce rate by volume has risen 40.5%.
The National Automated Clearing House, a clearing service for interbank transactions run by the National Payments Corp of India, showed cheque bounce rate by volume has risen 40.5%.

Lenders to sell up to 5,000 cr stressed retail loans in Jan-Mar

  • Banks are keen to offload some of these unwanted assets as stress on the retail loan portfolio is growing after the central bank’s payment moratorium ended on 31 August

As much as 5,000 crore of retail loans could be sold to buyers of distressed assets by banks in the March quarter, three bankers aware of the matter said, as the severe economic downturn has led to a surge in bad loans in this segment, considered to be safer than risky corporate loans.

Banks are keen to offload some of these unwanted assets as stress on the retail loan portfolio is growing after the central bank’s payment moratorium ended on 31 August. Banks cannot classify some of these accounts as non-performing assets till the Supreme Court passes a final order on waiver of interest.

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“We are expecting an increase in sales of retail loan portfolios in the coming quarters," said Aswini Sahoo, chief investment officer at Asset Reconstruction Co. (India) Ltd (Arcil). “Some large PSU banks are looking to sell loan portfolios in the range of 2,000 crore."

Bankers said more retail loans could turn bad in the December and March quarters. The National Automated Clearing House, a clearing service for interbank transactions run by the National Payments Corp of India, showed cheque bounce rate by volume has risen 40.5%. In value terms, it is up 31.1%.

According to a Macquarie report dated 8 December, non-performing loans (NPLs) in the retail category may double to 4% in the coming months.

“Nevertheless, we wanted to highlight that the retail stress levels could see a 10-year high of 4% in the next few quarters, and the market should not get overly concerned about retail NPLs going up," the report said.

Most banks are already carrying high covid-related provisions (excluding standard asset provisions). At the end of September, most lenders reported collection efficiency levels of 95%.

“Banks are looking to sell old retail segment NPAs to make space for new loans that could turn NPA depending on the SC verdict. Most are home loans and loans against property," said a banker in the know.

“Earlier, banks felt they have a superior collection because of branch outreach. But cost of establishment is high, and branches have other targets to meet. So there is more willingness on the part of banks to sell these loans," he added.

Responding to the pandemic in March, the Reserve Bank of India (RBI) allowed a six-month moratorium on repayments. Then it let banks and non-bank lenders recast loans with easier repayment norms. However, not many availed of this facility, with State Bank of India restructuring just 4,000 home and personal loans, Mint reported on 7 December.

Experts said retail loans may see more stress accumulating due to covid. Home loans, which account for over half of all retail loans, stood at 13.3 trillion as on 24 April. In a report in December, RBI cautioned that while banks have oriented their lending towards relatively stress-free retail, the slowdown in private consumption spending has imposed limits to this growth strategy even as possibility of defaults among retail segments rises.

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