Retail loans, which dominated Covid restructuring for top private banks in pandemic year 2020-21, is set to see a higher delinquencies in the near term as borrowers are busy fighting the impact of a unprecedented second wave of infections, according to Sashidhar Jagdishan, chief executive and managing director, HDFC Bank. Borrowers who had to avail cover under regulatory dispensations like moratorium and restructuring after the first wave are more likely to default, the CEO said, implying that the lender will be "cautious" in these extraordinary times.
“For the first time in so many years we probably may not have a grip on what is going to happen. We should see asset quality come back to what we saw in the March quarter in a couple of quarters’ time,” he told investors in a call hosted by Macquarie Research. With the second wave hitting the otherwise resilient rural areas, Jagdishan said, it will play to some extent on both business momentum and recovery.
As on March 31, the bank restructured total loans worth Rs. 6,508.37 crore comprising 3.36 lakh accounts under the Reserve Bank’s one-time scheme. Of this, 2.87 lakh accounts were for retail loans amounting to Rs. 5,456 crore or 92.5 per cent. Corporate borrowers, however, have largely stayed away from restructuring their dues.
“We are reasonably sanguine on the asset quality on the corporate and the SME (small and medium enterprises) side, but from the retail or the segment of people who have or were stressed out in Covid 1.0, who had taken moratorium and restructuring, I think they will continue to feel the kind of pain and stress. So, probably, these are the ones which will show a bit of stress this time around,” he added.
The trend was similar for other private peers. Total restructuring by Axis Bank amounted to Rs. 844.6 crore, of which retail loans accounted for Rs. 503.71 crore as on March 31. Similarly, Kotak Mahindra Bank restructured loans worth Rs.121.5 crore, of which Rs. 82.38 crore consisted of retail loans. ICICI Bank and Yes Bank were outliers which saw more corporate loan recast. However, the overall restructuring was low for most banks as they made sufficient provisions.
Jagdishan further added that the slowing collections, keeping safety of field staff in mind, will translate to some amount of higher delinquencies but “borrowers should be able to cover up” as things get back to normal in two quarters. HDFC Bank saw a spike in cheque bounce rates in April, a reversal of the improvement it had seen since December 2020. But bounce rates normalised in May.
HDFC Bank management, meanwhile, has pinned their hopes on faster inoculation to lift economic activity, which will be key for banking sector recovery going ahead.