Home / Industry / Banking /  Retail borrowers make the most of recast plan

Retail loans restructured under a central bank scheme announced last year were more than thrice the corresponding figures for corporate loans, initial numbers released by top private sector lenders showed.

HDFC Bank Ltd, ICICI Bank Ltd and Axis Bank Ltd collectively implemented retail debt recasts of 6,603 crore and just 2,109 crore of corporate loans under the scheme. On a standalone basis, only ICICI Bank implemented more corporate recasts than retail. However, HDFC Bank’s 5,456 crore retail loan recast tipped the scales. Axis Bank restructured 504 crore of retail loans and 341 crore of corporate loans.

To be sure, while banks had to finish restructuring retail loans by 31 March, they have until 30 June to implement these relaxations for corporate borrowers. Therefore, the numbers might change when banks declare their June quarter financial results. Besides, most large lenders in the public sector have said in the past that corporate debt recasts make up the bulk of their recast requests. Restructuring may include extending the repayment period and lowering interest rates, and a moratorium to help the struggling borrower manage cash flows. This round of debt recast is marked by greater restraint than the last one when banks indiscriminately used the benefit to kick the can down the road.

“There was a requirement earlier on that someone had to demonstrate that he needed it, and he was in distress. We were obviously following that. But as soon as it got opened up and it was allowed on request, we were much more forthcoming in permitting the restructuring," said Jimmy Tata, chief credit officer, HDFC Bank.

Since the pandemic outbreak, it was expected that retail borrowers would find themselves in a far more difficult situation than corporates. For starters, millions of Indians lost their jobs and several others saw salary cuts as the economy grappled with rising infections. Just as things were improving, the second wave struck, leaving the nation in the throes of yet another calamity.

The potential pain in the retail portfolio is evident from commentaries of senior bankers. Tata, for instance, told analysts on 17 April that cheque bounces in the April have gone up slightly. As Mint previously reported, repayment bounces in FY21 were up nine percentage points. The surge in infections could potentially lead to more failures of auto-debit payments.

“Probably some panic due to the medical condition worsening of late. We do not know what it is, cannot say whether this is a blip or whether it is a trend, but cheque bounces in April have been slightly higher than they were in March, some sort of a trend reversal," said Tata.

Bankers have also said recoveries could see a dip as collection executives face movement curbs. Several states have implemented localized curbs.

“These are early days, but we do see an immediate business impact across segments," Amitabh Chaudhry, chief executive, Axis Bank, told reporters on 27 April.

Meanwhile, sensing another round of defaults if the spread of the coronavirus is not checked in time, bankers have already requested Reserve Bank of India governor Shaktikanta Das to extend the deadline for recasts. Non-banking financial companies have also sought an extension of the scheme at least till 31 March 2022. The primary difference between RBI’s covid-19 recast scheme and regular recasts is that in the former, loans are not classified as non-performing despite changes in repayment norms.

Banks have RBI to extend the deadline for recasts.pradeep gaur
View Full Image
Banks have RBI to extend the deadline for recasts.pradeep gaur
Shayan Ghosh
Shayan Ghosh is a national writer at Mint reporting on traditional banks and shadow banks. He has over a decade of experience in financial journalism. Based in Mint’s Mumbai bureau since 2018, he tracks interest rate movements and its impact on companies and the broader economy. His interests also include the distressed debt market, especially as India’s bankruptcy law attempts recoveries of billions worth of toxic assets.
Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Recommended For You
Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout