Home loan NPAs grow 9% during December to May while two-wheeler loan bad loans shoot up 42%
The next cycle of bank non-performing assets (NPAs) may come from retail loans as the economy is slowing down and borrowers are unable to protect their jobs.
As banks and NBFCs give a thrust to the retail lending business like home, car and personal loans, the NPAs or bad loans from the consumer segment is rising. This may lead to the next cycle of NPAs if lenders do not put in place robust risk management techniques to cap the losses, according to experts. A loan whose principal or interest is not paid for 90 days is called an NPA.
"The Indian credit market has been witnessing strong growth over the last six quarters. Risk indicators have shown upward bias, but are still within range," said Ashish Singhal, managing director, Experian Credit Information Company of India.
Singhal, whose firm has access to all the loans handed out to both retail and corporate customers, said that growth in the market has been driven by unsecured loans like personal and consumer durable loans while growth for secured loans like home and auto loans has tapered off in the fourth quarter of fiscal 2019.
"Recent events such as the slowdown in the economy, auto, manufacturing and real estate sectors could dampen the credit growth and we need to watch for risk even more closely," he said.
Data from Experian shows NPAs for all retail segments are rising. At the end of May 2019 banks and NBFCs had outstanding home loans of Rs 18,53,053 crore. The home loan gross NPAs were at Rs 36,945 crore in December 2018 which inched up to Rs 39,033 crore and were at Rs 40,431 crore at the end of May. This translates into 9% growth over December. Two-wheeler loan outstanding was Rs 58,353 crore in May. The NPAs on these loans were at Rs 5,406 in December 2018, rising to Rs 7,722 crore in May 2019, or about 42%, according to Experian data.
Unsecured loans like personal loans also saw a higher delinquencies, but credit cards saw an improvement. Banks and NBFCs had disbursed Rs 44,2560 crore personal loans. The gross NPAs on this was Rs 21,540 crore in December 2018, which rose to Rs 36,723 crore in May 2019, or a 70% rise. Credit cards had outstanding loans of Rs 1,23,526 crore. The NPAs on this segment was Rs 26,207 crore in December 2018 but dropped to Rs 25,103 crore in May 2019.
"The slowdown is resulting in job cuts leading to NPAs from the retail loans rising in general for the industry. Certain sectors like the auto industry are also not doing well, which is throwing up delinquencies. But we are having a healthy bunch of loans so far, even after the amalgamation of Vijaya Bank and Dena Bank," said a senior Bank of Baroda official.
The used commercial vehicle segment is insulated for now with companies financing the depreciated value of the vehicle.
"Due to the monsoons there is generally a small uptick in the NPAs, but we are in the used commercial vehicle segment where the borrower is the end-user. Besides these vehicles come with a depreciation of 40% so we are financing 60 to 70% on the depreciated value of the vehicle which is not creating any big default issues," said a senior Shriram Transport Finance official.
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