Tensions among India’s retail borrowers over the second wave of the pandemic hurt most of the major lenders, either in the form of increased delinquency in payments or a decline in interest in new loans in the June quarter.
This contradicts what was predicted for the second wave, and it was expected to be worse in terms of health than in financial terms. It now appears that the second wave of income disruptions had a strong impact on the repayment capacity of smaller borrowers.
The impact was fairly secular and widespread. Lenders such as HDFC Bank, ICICI Bank, Axis Bank and Yes Bank have been hit by either a slowdown in retail lending growth or growing stress.
Loans from ICICI Bank ₹Rs 7,231 crore went down in a quarter. From those, ₹Rs 6,773 was attributable to the retail and commercial banking portfolio or the small business segment. This included ₹Rs 1,130 crore from the bank’s loan portfolio.
The bank said that due to new disruptions in retail banking and business, the share of mortgages was the same as in fiscal 21, and although loans for commercial vehicles and equipment were higher, the share of loans to individuals and credit cards was below.
“The second wave of covid-19 disrupted fees, resulting in increased slippage in the retail and commercial banking portfolio. However, management (ICICI Bank) is confident that asset quality trends will improve over the 22nd fiscal year, mostly starting in the second half, ”analysts at Motilal Oswal said in a July 25 report.
Asset quality at Axis Bank has also consistently deteriorated, as the share of gross non-performing assets (NPA) in the total advances amounted to 3.85% as of June 30, which is 15 basis points (bps) higher than in the March quarter. The bank said 84% of its June quarter slippage was attributable to the retail portfolio. Gross slippage during the quarter was at ₹Rs 6,518 crore, compared to ₹5,285 crores in the March quarter and ₹2,218 crores in the June quarter of last year.
The absence of a moratorium this time seems to have made the banks feel worse, as mobility restrictions affected fees in April and May. The bank’s management indicated that the recovery is observed in June and July, and if the third wave is thwarted, a business recovery will be inevitable.
“In the short term, medical requirements or restrictions have impacted the payment capabilities of some customer segments. Therefore, we expect more impact on the retail segment than on corporate banking in the financial services sector due to the second wave, ”said Amitabh Chaudhry, CEO of Axis Bank.
Private sector lender Yes Bank also faced increasing stress in its retail portfolio in the June quarter. Compared to the March quarter, the GNPA ratio rose 40 basis points to 3.3% of retail assets. In addition, retail loans 61 to 90 days overdue rose to ₹Rs 790 crores in the June quarter, from ₹234 crore in the March quarter and ₹Rs 513 crore in the June quarter of last year. Loans become non-performing if no payments are made within 90 days of the scheduled date.
“This is understandable because of the impact the pandemic had on the entire country in April and May, when saving lives was the top priority. This and the restrictions have definitely impacted the ability to make money, ”said Prashant Kumar, CEO of Yes Bank, on July 23.
Kumar said the situation is improving. “We expect these accounts will not turn into NAPs as collection efficiency improves. This is a one-time thing, ”he said.
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