Asset quality of retail loans not a problem, say analysts

Banks have been focusing on retail lending with HDFC Bank reporting a 33% y-o-y rise, Axis Bank 51% y-o-y rise in retail assets

Banks have been focusing on retail lending during the last couple of quarters, given the lack of demand for corporate loans.

Of the two private banks that have declared results so far, HDFC Bank reported a 33% year-on-year rise in its retail assets, while Axis Bank reported a 51% y-o-y rise in retail advances in the September-ended quarter. For Axis Bank, the share of retail advances accounted for 26% of net advances, compared to 21% in the year ago period, while for HDFC Bank the share of retail advances was 53% compared to 47% of wholesale advances.

According to analysts, this time around, the focus on retail segment is not likely to lead to a rise in non performing loans for banks as most of the loans are collateralised loans.

“Mortgages are the drivers this time around," said an analyst with a brokerage firm.

A report by IndiaInfoline said, “Axis Bank has been witnessing strong growth in key retail products of mortgages and auto loans (combined 88% of retail book).”

Another report on Axis Bank by Emkay said, “While the bank has resorted to traditional loan products like home and mortgage loans, auto loans, personal loans etc for its retail portfolio, it now plans to diversify its retail loan mix via increased traction in other products like CV loans, gold loans etc. Enhanced branch reach and product diversification should aid retail growth.”

For banks like HDFC Bank, which have good processes in place, a strong distribution network and access to existing premium customers, non performing assets should not be a big a problem, says Vaibhav Agrawal, V P, Research-Banking, Angel Broking.

Mohan Jayaraman, MD, Experian Credit Information Company of India said that on a generic plane, delinquencies are holding steady for banks, in both the incremental portfolio that is in new loans as well as in their existing mature loans.

“Banks are sourcing quality credit," he said.

However, some analysts feel that going ahead the retail segment could be impacted by the lower economic growth. The high inflation, which will eat into individual savings, could also lead to a slowdown in demand for retail loans. 

But according to Agrawal, we are already at the peak of the interest rate cycle and GDP growth is bottoming. Even if GDP remains at these levels and if interest rates go down by 25 basis points, then there is no reason why the retail growth should slow down. In any case, for the industry as a whole, the growth in the retail segment is moderate at about at 15%.

“The PSU banks have started focusing more aggressively on retail only in the last few months. So, there is still scope for growth in retail segment," he said.