SBI Cards’ Q2 was scarier with 4.3 per cent gross non-performing assets ratio up from 1.4 per cent in Q1. The card issuances data suggests that in current conditions the lender would prefer caution to growth (see table). While prudent as a strategy, slow growth could drag the overall asset quality.
Based on the initial assessment of Q2 results, analysts at Credit Suisse have forecasted that delinquencies in retail loans
may translate to 5-10 per cent of the book for private banks and 9 – 12 per cent for non-banking finance companies
(NBFCs). “Early reporting on segment-level delinquencies in Q2 indicate wide variances in consumer loan delinquency trending at 17-21 per cent in credit cards and two wheelers respectively; 10-11 per cent in microfinance
and tractors segments; less 10 per cent in commercial vehicles and 3-7 per cent in business banking and LAP,” they note. Improving trends in monthly collections is a critical assumption in extrapolating these numbers.
That said, Suresh Ganapathy of Macquarie Capital remains unchanged on his total gross addition to stressed assets estimates at 8 to 10 per cent in the next 6 - 9 months. He believes half of the moratorium book to come under stress. “Some (lenders) argue that 80 per cent (of moratorium book) will be fine and only 20 per cent could be stressed. We find it difficult to digest; how a customer could pay his September or October month dues when he has not paid for six months,” he questions.
Partly agreeing with Ganapathy, Ashish Singhal, MD, Experian Credit Information Company India says collection efficiency is 200–400 basis points below pre-Covid levels, indicating deterioration in asset quality. “Some customers thought the Supreme Court’s stay on NPA recognition was an extended moratorium,” he adds. In fact, if not for this, NPA numbers would have been different (see table).
Hence, the coming months would hence be critical to judge the quality of retail assets and much of it will depend on borrowers’ financial position and lender’s comfort to grow their books. “We are not seeing a shift to low-rated customers enquiring or availing loans. However, in terms of actual portfolio performance and scores, the next 2 - 3 months will be critical,” Singhal cautions. For now, rating agencies say enquiries are increasing for home loans, auto loans and credit cards vis-à-vis personal loans, indicating lesser chances of revolving loans to meet monthly dues.
Axis Bank, ICICI Bank and IndusInd Bank are set to disclose their Q2 numbers this week. Their commentary will be important to judge if the retail credit cycle has done its life.