One in every 10 retail borrowers missing monthly payments: RBI report

According to RBI's financial stability report, the total of SMA-0, SMA-1 and SMA-2 in the retail advances in the public sector banks was 9.4% as of March 31

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Even as the gross bad loans in India are at a decadal low of 3.9 per cent, nearly 10 per cent of retail borrowers are missing their monthly payments, the financial stability report (FSR) released by the Reserve Bank of India (RBI) recently showed.

According to the data in the report, the total of SMA-0, SMA-1 and SMA-2 in the retail advances in the public sector banks (PSBs) was 9.4 per cent as of March 31.

The stress in loan accounts in India is put under three categories under the special mention account (SMA) category. If the interest of the principal payment is delayed but not overdue by more than 30 days, it is put under SMA-0. If the payments are overdue between 31 and 60 days, it is categorised as SMA-1. Finally, if the payment is overdue between 61 and 90 days, it is called SMA-2.

Loans overdue by over 90 days are called non-performing assets (NPAs) or bad loans.

The loan accounts falling under SMA-1 and SMA-2 have a higher proclivity for default.

"Although the gross non-performing ratio of retail loans at the system level was low at 1.4 per cent as of March 2023, the share of 'special mention accounts' was relatively high at 7.4 per cent for scheduled commercial banks (SCBs) and it accounted for a tenth of their retail assets portfolio," RBI said in the report.

The statistic gains more importance given that the pace of retail loans between March 2021 and March 2023 has doubled compared to the total advances. Moreover, the RBI said that high inflation puts the repayment of these loans for many retail investors at risk.

The report also showed that there is potential stress on household balance sheets.

"Households with an EMI-to-income ratio of more than 60 per cent are more at risk of a negative financial margin," it said. Financial margin is defined as income net of estimated taxes, EMI on household loans and expenditure on basic necessities.

High inflation increases the expenditure on basic necessities. Also, the rate hikes by the central bank increase the EMIs, impacting the margins of households.

Since April last year, the repo rate has gone up 250 basis points to 6.5 per cent from 4 per cent. According to several economists, the rate cuts are at least two quarters away.