Agriculture, small biz, retail loans to be a concern for banks in FY21

After a prolonged period of troubles with big-ticket exposures, it will be the loans to agriculture, small businesses and unsecured retail debt which will become a concern for banks in 2020-21, a rating agency said on Thursday.

The size of the corporate stressed asset book, arrived at after an analysis of over 30,000 companies, is lower than the year-ago period and the incremental corporate slippages will slow down in the new fiscal, India Ratings said.

The commentary comes after over six years of stress due to corporate exposures, which have had a heavy impact on banks' profitability and forced the government to inject more capital into banks it runs.

The RBI has also estimated a dip in stress at its bi-yearly stability report in December.

Loans to agriculture, micro, small and medium enterprises and the retail advances are a matter of "concern", its associate director Karan Gupta told reporters here.

He said the last two years have seen banks focusing more on the unsecured loans by growing credit cards and personal loans at a faster clip.

Retail product asset quality is deteriorating, he said, pointing out that all major segments like auto, education, and personal loans and credit cards have seen a faster accretion in NPAs.

Meanwhile, the agency also flagged potential concerns awaiting lenders on this front, pointing out that job and wage growth in the economy has lagged retail loan growth.

NPAs continue to increase in the MSME segment as well, he said, adding that the NPAs in the government-mandated MUDRA loans are 14 per cent.

It, however, said that due to covers like the credit guarantee trust for MSEs, the MUDRA loans are not as much as a problem as these appear to be.

On the corporate side, it said 17.9 per cent of the total bank credit or Rs 18.5 lakh crore in advances to large value segment as of September 2019 can be classified as stressed, which is down from 19.3 per cent in the year-ago period.

The agency said 3.9 per cent of the advances, which are now classified as standard stressed assets, are at the highest risk of slipping into NPAs, and these come majorly from the power, real estate and construction sectors.

The lower stress will lead to a moderation in the credit costs, or the amount of money that has to be set aside to cover for sour bets, it said.

Meanwhile, the agency also said that the trend of an "indirect privatisation" of the banking sector, seen in higher accretion of deposits and loan writing over the past five years, will continue even in FY2020-21 as well.

There will be a heavy competition for deposits, it said, adding that the private sector banks have an upper edge in this fight as they are offering higher interest rates and also developed an ability to make borrowers pay higher rates to protect their margins.

It has given the private sector banks a stable outlook, while the state-run ones have been placed under the 'rating watch evolving' category.

On the non-bank lenders or NBFCs front, the agency said there will be a divergent trend where a few select NBFCs will grow on the back of better liability management, access to capital and distribution network, while others will be laggards.

There has been an improvement in the asset liability management issues, which led the NBFC sector to a crisis, it said, adding that entities will rely more on bank and off balance sheet financing rather than the market-based ones.

The agency said it has a negative outlook on the wholesale NBFCs and also those focused on commercial vehicles.

The loans against property segment has also been given a negative outlook due to weakened pricing and asset quality challenges, tractors as a segment also carries a similar outlook on uneven and unseasonal rainfall, while a broader economic slowdown has led to the same outlook on construction equipment as well.

The microfinance segment outlook is also "negative" on asset quality trends, while gold loans is the only segment which has bagged a "stable" outlook from the rating agency, it said.

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