Private banks typically lend to employees from the private sector and to self-employed people, all of whom have been hit harder by the Covid-19 pandemic.
"By FY22, Lendingkart has planned to onboard around 1.25 lakhs MSMEs on its portfolio."
Rising financial stress among small borrowers is hitting the books of private banks the hardest, show data released by the government in response to a question in Parliament. Between March and December 2020, banks saw upto 380-basis point (bps) rise in their ratio of stressed retail advances, with more private lenders seeing a deterioration than public sector banks (PSBs).
With the exception of Punjab & Sind Bank and Bank of Baroda (BoB), most other PSBs saw their stressed retail advances ratio either declining or remaining flat during the period under review. On the other hand, seven private banks saw an increase in their ratio of stressed retail advances to all retail advances. Stressed advances include gross non-performing assets (NPAs) and restructured standard advances.
Private banks typically lend to employees from the private sector and to self-employed people, all of whom have been hit harder by the Covid-19 pandemic. PSBs have a relatively smaller share in retail lending and their customers are often employed with the government or other state-owned enterprises. Also, private banks have had a stronger presence in the unsecured lending space where the credit risk is higher.
Analysts have been saying that unsecured loans and microfinance exposures could throw up nasty surprises on the asset quality front. India Ratings and Research on Tuesday said that the performance of unsecured asset classes, such as microfinance loans, unsecured business loans and consumer loans, is worsening, given the borrower’s depleted financial cushions and the nature of these loans. “Moratorium has delayed the stress in these segments where delinquencies have not yet stabilised, and higher loan losses are expected to materialise in FY22,” the agency said in a report.
Sensing the incipient stress in the retail segment, banks have been tightening their credit filters. After Axis Bank’s Q3FY21 results, chief risk officer Amit Talgeri told analysts that over 83% of incremental retail sourcing is from secured products, primarily mortgages, during the current year. “We continue to remain cautious in the unsecured segments, and sourcing is largely restricted to existing Bank customers based on tightened risk frameworks,” he said. Earlier, FE had reported that banks have been refusing loans to customers employed in Covid-hit sectors like aviation, hospitality and the media.