Banks might be staring at a spike in retail NPAs

Mumbai: Even as restructuring in the corporate loans has been lower than expected, high slippages in retail and SME loans have confirmed fears of fresh non performing assets (NPAs) coming from these segments as salary cuts and job losses due to the economic destruction caused by the Covid 19 pandemic has severely dented banks' balance sheets.Bank results show that slippages in retail loans have increased with lenders like ICICI Bank and RBL Bank reporting a sharp year on year increase in NPAs from the segment while others that didn't like IndusInd and Bank of Baroda flagging risks from retail loans in the near future.ICICI Bank's gross NPAs from the retail segment rose to 3.11% of loans in December 2020 up from 2.14% a year earlier as the bank acknowledged that the retail loans has been impacted by the adverse economic situation. Similarly, RBL Bank also reported a spike in gross NPAs from retail lending to 2.82% of loans in December 2020 from 0.95% a year earlier."This has been a difficult here...there have been problems. There was a moratorium which has been now lifted and a part of customers have been impacted but we have made enough provisions for the same," said Sandeep Batra, executive director, ICICI Bank.Banks have generally seen about a 100 basis points increase in gross NPAs year on year after taking into account loans that should have been classified as NPAs but were not due to a Supreme Court stay.RBL Bank's gross NPAs fell to 1.84% compared to 3.33% a year ago but including loans which were not classified as NPAs due to a Supreme Court stay, those NPAs should have been 4.57%.RBL Bank CEO Vishwavir Ahuja said retail is showing some stress particularly in cards and micro banking. Credit card loans which are unsecured make up the largest chunk at 37% of the bank's portfolio and has seen a deterioration in asset quality with as much as 5% of loans which were under moratorium past the 90 days due mark and a further 2% of these loans past 30 days due.Analysts say retail asset quality need to be watched out especially due to the severe impact the pandemic has caused on livelihoods."We are already seeing some stress but its still only three months since the moratorium has been off so we may see a spike in NPAs in the coming quarters. Lost jobs and salary cuts will not come back and that will have an impact on recoveries as ultimately the effect of pent up demand will wane. We should be prepared for negative surprises from retail loans," said Siddharth Purohit, analyst at SMC Global Securities.Even banks which did not see a year on year rise in gross NPAs from retail loans have flagged concerns on their unsecured portfolios like credit cards.Delinquencies in IndusInd Bank's credit card portfolio increased as many old customers who have been paying regularly since the last 10 years missed their monthly installments, forcing the bank to make 100% provisions and tighten norms on these accounts.Credit card slippages were high at Rs 537 crore out of the Rs 5300 crore portfolio of the bank, CEO Sumant Kathpalia said even as gross NPAs in the aggregate retail book fell to 1.18% from 1.35% in December 2019.Bank of Baroda did not see a net addition in NPAs as higher recoveries, write offs and upgrades made up for slippages but CEO Sanjiv Chadha expressed concerns on likely delinquencies from the bank's retail and SME book in the future."There may be some know unknowns in the retail and SME books which are not stress tested unlike the corporate book for which we have a fair bit of visibility. We are seeing some unprecedented stress and some of it may not be anticipated," Chadha said.Some banks like RBL have started building a secured retail book led by home loans.Ahuja said the bank will look to increase its secured retail loans business in the next fiscal as it looks to mitigate its risks from the high yielding credit card and micro finance business."We have started a affordable home loan business a year ago which is now a Rs 500 crore book. We now plan to start a home loan and tractor loan business to leverage our network and tap the earnings potential while counter balancing our other risk profile," CEO Ahuja said.

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