Covid impact: banks see slippage increasing in cash-focused segments

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The State Bank of India (SBI), CSB Bank and Federal Bank were among the lenders who reported an increase in non-performing assets (NPA) in the gold lending segment.

Lenders reported deterioration in asset quality during the April-June quarter in loan categories where inflows play a significant role. Gold loans, commercial vehicle (CV) loans and microfinance – all saw new bad loans increase in the first quarter of fiscal 22 as the second wave of Covid-19 hampered collection activities. The lack of a moratorium on repayments, unlike last year, has increased the stress on lenders’ books.

The State Bank of India (SBI), CSB Bank and Federal Bank were among the lenders who reported an increase in non-performing assets (NPA) in the gold lending segment. The SBI’s NPA ratio on gold loans stood at 2.24% in the June quarter. President Dinesh Khara attributed the high NPA ratio of gold loans to the inability of collection staff to reach borrowers due to mobility restrictions.

CSB Bank chief executive and CEO CVR Rajendran said last month that a drop in gold prices had led to margin calls and requests for additional money from borrowers. This phenomenon has also played a role in the rise in bad debts. SBI and CSB Bank said that as the bottlenecks are lifted, people should be able to go to bank branches and close the margin gap.

Loans for commercial vehicles also came under pressure in the first quarter, as closures and mobility restrictions hampered the flow of trucks carrying goods and even three-wheelers used for commuting in small towns. Bajaj Finance said in July that the three-wheeler sector, which accounts for 30% of the company’s Rs 11,347 crore auto loan portfolio, was particularly hard hit in the second wave.

Rajeev Jain, chief executive of Bajaj Finance, said the reason slippages were under control in the first quarter of FY21 was the loan moratorium. “We realize and we have said it many times, this is the only company where we basically deal with mass customers. We have been affected much more or they are affected much more, ”he said.

The impact of movement restrictions was even more pronounced in rural markets. Ramesh Iyer, vice president and general manager of Mahindra & Mahindra Financial Services, told analysts that rural prosperity depends on the movement of goods and that was hit in the second wave. “The other feeling that we saw in the rural market which affected us is the following, many customers had money, but could not come to pay or we could not go to look”, a said Iyer.

Since the repayment stress in the first quarter was largely due to lockdowns, the lifting of restrictions in most states in June had a beneficial impact on most lenders. The SBI said that in the past and a half months it had been able to withdraw Rs 4,700 crore from slippages. Most other lenders also reported a recovery in collection efficiency in June and July. However, the outlook for the quality of retail assets remains uncertain. Most banks and non-bank lenders expect its trajectory to depend on the likelihood of a third wave of the pandemic.

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