The Hindu Business Line : Gross retail NPAs to touch 4% by fiscal end

Mumbai, July 31 The gross non-performing assets (NPAs) in retail loans are set to increase to around 4 per cent by March 2009, from 2.7 per cent on March 31, 2007, said a report by rating agency Crisil.

This is on a retail asset base of Rs 5-5.5 lakh crore across banks.

The report, released on Thursday, said that the segments most affected by the decline in asset quality are unsecured segments such as personal loans and credit receivables, as well as two-wheeler, commercial vehicle and used car loans.

Delinquencies have increased across the retail portfolios of banks, non-banking financial companies (NBFCs) and housing finance companies (HFCs).

Mr Tarun Bhatia, Head, Corporate and Government Ratings, Crisil, said that the increase in the percentage of unsecured loans and the rising exposure to high risk customers in tier II and tier III cities, are some of the reasons for the rising delinquencies in the retail portfolio of banks.

“Medium or small sized banks and NBFCs who operate in single asset class are more vulnerable than large banks who have diversified portfolios,” he said.

Among banks, retail assets comprise about 25 per cent of advances for public sector banks, while for private banks they comprise about 50 per cent of total assets, he said.

No crisis situation

However, the deterioration in asset quality is unlikely to result in a system-wide crisis. This is because mortgage and new car loan, which are less-risky, continue to dominate the retail lending portfolio.

Mortgage comprises about 50 per cent of the retail portfolio, followed by cars, commercial vehicles and two wheelers at about 30 per cent and the remaining 20 per cent consists of unsecured loans such as personal loans and credit card receivables.

The current fiscal is a difficult year from the earnings point-of-view for banks because interest spreads are under pressure and cost of credit has increased due to higher provisioning, Mr Bhatia said.

Banks can expect roughly 0.15 per cent drop in net profitability.

“Retail growth will slow down to high single digit in the current fiscal, because of the rising interest rates. This is an asset class that is immediately impacted by rising rates,” he said.

Home loan NPAs

Gross NPAs in home loans increased to 2.2 per cent in March 2007 from 1.8 per cent in 2005. These are expected to increase to 2.7 per cent in 2008-09.

In case of car loans, the NPAs may touch 3 per cent, from 2.3 per cent as on March 2007, on account of the increasing proportion of used car loans, which have inherently weaker customer profiles.

Rising operating costs, in the road transport sectors, have put pressure on the margins of transport operators, and have resulted in higher delinquencies in the commercial vehicle segment, where gross NPAs may increase to 5.5 per cent from 4 per cent as on March 31, 2007.

The loss levels in the unsecured loans, which consist of personal loans and credit card receivables, may be in the 12-15 per cent range over the medium term, the report said.