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Retail and SME loans set for litmus test in 2021 as stress levels may rise

Little leeway on pricing and asset quality at a tricky level could places both segments in a tight spot

Topics
retail loans | RBI | RBI Financial Stability Report

Hamsini Karthik 



Loans, Retail loans
Retail and MSME loans together account for 45–60 per cent of the total loan portfolio for banks.

The Reserve Bank of India’s Financial Stability Report (FSR), published on Monday, reiterated higher-than-anticipated stress formation. But here’s the tricky part. While the report is cautious across categories of lending – wholesale, micro, small and medium enterprises (MSMEs) and consumer credit and the outlook for wholesale or corporate loans is a tad better than expected, stress could be building up in the retail or consumer lending space and MSME segment as indicated in the table. Retail and MSME loans together account for 45–60 per cent of the total loan portfolio for banks. The FSR acknowledges that with the regulatory reliefs granted following the pandemic, the real vulnerability of portfolios may not be reflected. The expectation is that starting December quarter (Q3), the stress is likely to be projected in the financials. Suresh Ganapathy of Macquarie Capital anticipates retail stress to touch a 10-year high of four per cent. Added to this, the larger problem could be that of pricing these loans.

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First Published: Tue, January 12 2021. 18:27 IST

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