HYDERABAD: In July, retail loans overtook corporate credit, perhaps for the first time in Indian banking history. The trend continued in August, and it is likely that in Q2, the aggregate retail loan book of banks will surpass their corporate counterpart.
But the cheer could be short-lived due to rising bad loans. According to India Ratings, overall stressed assets – NPAs and restructured loans – in the retail segment will likely touch 5.8% of total advances by the end of FY22 from 2.9% a year before. In Q1 alone, according to Care Ratings, gross NPAs in retail and MSME loans of public sector banks rose to 7.28% from 6%. The incidence of bad loans was comparatively less intense for private banks at 3.32%.
To contain the stress, lenders have mounted massive restructuring this fiscal. For instance, State Bank of India restructured loans worth `20,000 crore in Q1, of which retail personal loans were at Rs 9,000 crore. These include unsecured loans, personal loans, home, auto and education loans.
But unlike in the past when NPA woes were limited to state-run lenders, this time private banks will equally face the music given their foothold in retail sector. India Ratings believes the asset quality impact in retail sector has been significantly higher for private banks, forcing them to restructure loans helping to defer immediate rise in slippages.
The blanket moratorium on repayment of both principal and interest announced during 2020 benefited borrowers and banks (keeping NPAs at bay), but high slippages and restructuring indicate a stress build-up in the segment.
With household finances remaining under pressure, banks and NBFCs are wasting no time to auction off big chunks of the stressed loan pile to avoid a repeat of toxic assets as seen in the corporate segment.