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Covid blues: Banks fear credit slowdown as cases surge

The fourth quarter, which is when banks book 35-40% of their business for the full year, may be hurt in FY22 amidst dampening sentiment and fresh curbs on movement, bankers told FE.

To be sure, the increased use of digital channels for sanction and disbursement of loans is helping to cushion the impact of lower staff strength. However, the hit to business sentiment is real, bankers said.
To be sure, the increased use of digital channels for sanction and disbursement of loans is helping to cushion the impact of lower staff strength. However, the hit to business sentiment is real, bankers said.

Sustaining a pick-up in credit growth is turning into a challenge for banks not merely because of the disruptions to businesses and households but also because of fears of asset quality worsening. That top corporates continue to de-leverage and that banks remain risk averse are also reasons why loan growth could slow in the coming months.

The fourth quarter, which is when banks book 35-40% of their business for the full year, may be hurt in FY22 amidst dampening sentiment and fresh curbs on movement, bankers told FE.

According to data released by the Reserve Bank of India (RBI), non-food credit grew 9.28% year-on-year (y-o-y) during the fortnight ended December 31, picking up sharply from the 7.51% growth seen in the previous fortnight. The value of corporate bond issuances stood at Rs 73,145 crore in December 2021, down 17% on a y-o-y basis, as per data from the Securities and Exchange Board of India (Sebi). Loan growth had perked up during the festival months of October and November, but the renewed jump in Covid cases, which many are already referring to as a third wave, may set back the growth figures.

Senior bank executives FE spoke to said that they are having to cut down on staff presence at branches and offices in some parts of the country due to the increased incidence of infections. “We saw cases increasing in our Delhi and Kolkata offices and therefore we had to reduce our staff strength to 50% in those offices. Credit growth will take a hit as a result of this because Q4 is when we get almost 40% of the full-year business,” said a senior executive with a mid-sized private bank.

While there has been no visible impact on repayments so far, if the caseload does not peak off soon, there could be a hit to asset quality as well. “As always, the self-employed segment will be the one that gets hit the worst,” the banker quoted above said.

Many states have imposed mobility restrictions to slow down the spread of infections and some of these cover footfalls at bank branches as well. To be sure, the increased use of digital channels for sanction and disbursement of loans is helping to cushion the impact of lower staff strength. However, the hit to business sentiment is real, bankers said.

Ashutosh Khajuria, executive director, Federal Bank, said that the bank is not facing any operational challenges, but credit utilisation has slowed down. “We have strong operational capabilities in terms of digital delivery of credit, including for gold loans, and there are no challenges on that front. But the sentiment today is not as upbeat as it was on January 1 as we are seeing drawdowns get affected. People are in a wait-and-watch mode and want to hold out for another three-four weeks before drawing down the money due to the Omicron wave,” he said.

Fintech lenders who rely to a lesser extent on a physical network of branches and staff say they are yet to see a major impact on lending. Aditya Harkauli, chief business officer, Indifi Technologies, said, “Our initial reading from all the available data and the commentary from government and medical experts suggests that this could be an intense but short-lived wave. We don’t expect it to disrupt the overall demand for credit from the SME segment beyond 30-35 days.”

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