Banks turn cautious on retail loans

Banks are seeing new bad loan formation in consumer and MSME (micro small and medium enterprises) loans this quarter, something also warned by the apex bank last month in its Financial Stability Report.

On Wednesday, public sector lender Bank of Baroda that announced its third quarter results warned of rising stress in the coming months from retail and MSME loans resulting from the Covid stress.

Similarly, private lender Axis Bank said 83 per cent of its loan slippages during the quarter came from the retail segment, particularly from self employed customers customers.

“The kind of stress we are seeing now is something which is unprecedented and therefore it is likely that there may be some slippages in MSME and retail,” said Sanjiv Chadha, MD & CEO of Bank of Baroda at the earnings call, adding, “I am holding out caution. But we are well-positioned, as we have tightened underwriting. Around one per cent of our loan book is unsecured and more than 70 per cent of the retail loan book comprises home loans.”

BoB’s credit cost, including the impact of provisioning on proforma nonperforming assets, was at 2.10 per cent. The bank

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mortgage restructured Rs 9,600 crore of loans in the December 2020 quarter, 80 per cent of which was corporate loans.

“We do recognise the fact that going ahead some stress will play out in the MSME and retail loan book,” Chadha added.

The bank on Wednesday reported a standalone net profit of Rs 1,061 crore for the December quarter on the back of lower provisions. It had posted a loss of Rs 1,407 crore in the same period last year. It reported provisions of Rs 3,957 crore in Q3 of FY21, down 45 per cent year-onyear. With proforma slippages (adjusted for the Supreme Court’s interim order), gross and net NPA ratios would have been 9.63 per cent and 3.36 per cent, respectively.

On the same lines, Axis Bank’s rise in slippages from the retail portfolio led to tightening of credit norms by the bank for retail loans. “We have been adding rigour to our credit underwriting process. Our focus is to grow in the secured lending space in the retail portfolio," said Sumit Bali, president- retail lending and payments at Axis Bank.

About retail loans turning bad, Puneet Sharma, CFO said, “These are accounts which were under moratorium between March and August.”

Axis Bank’s net profit stood at Rs 1,116.6 crore compared with Rs 1,757 crore a year ago.