Private lenders see retail stress build up in April-December
Of the nine banks that saw a rise in retail stress, seven were from the private sector, and only two state-owned
MUMBAI : The aggressive push for high-margin credit cards and personal loans has returned to haunt private banks, raising stress in their retail portfolios as borrowers struggling with pay cuts and job losses fail to repay loans on time.
Private banks seem to be hit harder than most state-run peers when it comes to stress in retail lending portfolios, showed data presented in the Parliament. Stressed loans include bad loans and restructured loans.
Most banks do not provide a break-up of their stressed loan book between retail and corporate segments. The data, sourced from the Reserve Bank of India (RBI), provides a peek into the stress levels of retail borrowers across the banking system between March and December 2020. Analysts have, in the past, flagged potential stress among individual borrowers as a direct fallout of the income disruption caused by the covid-19 pandemic.
While state-owned lenders like Punjab National Bank, Union Bank of India and UCO Bank witnessed a decline in retail stress, private lenders like HDFC Bank, IDFC First Bank, IDBI Bank and Kotak Mahindra Bank experienced just the opposite. Of the nine banks that saw a rise in retail stress, seven were from the private sector, and only two state-owned, the Parliament data showed.
Private banks have a higher share of unsecured loans, or loans that are disbursed without any collateral in their books as compared to their state-owned peers—one possible reason behind their higher retail stress. Unsecured loans offer higher returns, though it comes with greater risk. In fact, all banks are gradually changing their strategy on unsecured loans, witnessing the vulnerability of such loans to adverse events and external shocks.
Unsecured loans include credit cards, personal loans, education loans and microfinance. Non-performing assets (NPAs) in education loans rose to 9.55% in December 2020 from 7.61% in March.
Unsecured loans form 15.6% of the aggregate loan book of private banks, against 6.3% in their state-owned peers, showed data from India Ratings and Research. If the country’s largest lender State Bank of India is excluded, the share of unsecured loans for public sector banks is even lower, at 4.9%.
India Ratings and Research said on 16 March that the performance of unsecured asset classes, such as microfinance loans, unsecured business loans and consumer loans, is worsening, given the borrowers’ depleted financial cushions and the nature of these loans.
“Moratorium has delayed the stress in these segments where delinquencies have not yet stabilized, and higher loan losses are expected to materialize in FY22," it said.
To be sure, there are some private banks like Axis Bank, ICICI Bank, Yes Bank and Federal Bank that witnessed a decline in stressed retail advances between March and December. The bank with the highest increase is Punjab and Sind Bank at 380 basis points (bps), and the one with the steepest decline is Kolkata-based UCO Bank at 250 bps, according to the data presented in Parliament.
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