1 Defaults on retail loans are declining but they remain high
Among the biggest unknowns regarding the impact of Covid-19’s economic disruption has been its impact on household finances. The net effect is likely to be sum of forced/precautionary savings and loss in income/employment. The former is likely to have reduced liabilities, while the latter is expected to have led to depletion in assets or worse, default on existing liabilities. While we do not have a comprehensive database on household balance sheets, information on failed transactions – they capture default on pending payments on monthly instalments, premiums etc – from the NPCI’S-NACH (national automated clearing House) can serve as a useful proxy of this trend. To be sure, experts point out that this database only captures payments related to Non-banking Financial Companies and therefore is not representative of any change in the retail loan component of non-performing assets (NPAS) of banks. The share of payments which did not come out of total expected payments increased sharply during the lockdown and peaked at 38% in June 2020. While this value has since come down, it is still higher than pre-covid levels. In absolute terms, the value of payments which did not come on time was ₹23,809 crore in the quarter ending December 2020, 1.31 times that in the same period a year ago. Gaurav Jani, banking analyst at Centrum broking said that the increase in default rates in recent months means lowering in earnings of retail loan borrowers. These rates are expected to fall as earnings of retail borrowers improve subsequently, he added.