The Hindu Business Line : ‘Losses from small ticket loans, cards to rise’

Mumbai, Jan. 8 Loss levels in small ticket personal loans and a portion of credit card receivables, which are currently at 7-9 per cent, could rise to 10-13 per cent in three years, said a report by Crisil Ratings.

Terming this segment as ‘sub-prime’ assets in the Indian context, the report said that these are unsecured loans between Rs 5,000 and Rs 25,000-30,000. Of the total credit card receivables, about 15-20 per cent falls in the profile of low income groups.

The total retail assets of the Indian banking industry are about Rs 4 lakh crore. Of this the ‘sub-prime’ segment forms about 5 per cent or Rs 20,000 crore, said Mr Tarun Bhatia, Head, Corporate and Government Ratings.

Spike in defaults

September-October 2007 saw a sharp spike in delinquencies because of the slowdown in recovery efforts, following the controversy over recovery methods of some banks.

There would be a slowdown in this segment and some banks may exit the small ticket loans segment at a future point of time, said Mr Bhatia.

While the retail segment saw a compounded growth of 30-40 per cent two years back, it is likely to see 20-25 per cent growth this year.

Delinquencies across all retail assets are likely to increase.

The gross NPAs in home loans, which comprises over half of total retail loans, are expected to increase to 2.7 per cent in 2008-09, from 2.2 per cent in March 2007.

The gross NPAs for car loans are likely to touch 3 per cent (2.3 per cent) and for commercial vehicles it is likely to touch 5.5 per cent (4 per cent).

PSBs at higher risk

Public sector banks, whose risk management systems and collection practices are not as effective as their private sector counterparts, may see higher NPAs.

PSU banks were getting into the retail asset classes without fully understanding it. But even that problem had been resolved to a large extent now, Mr Bhatia said.

Asked about the profitability of banks, Mr Bhatia said it would remain under pressure and may see a fall of 15-20 basis points in 2007-08, due to high cost of deposit.

But most banks have taken advantage of the rising equity market and this will be reflected in their profits.

A reduction in lending rates on the retail side is unlikely in the near term, for the next six months as deposit costs are still high and the Reserve Bank of India too had not reduced rates, Mr Bhatia said.