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The stress in the banking sector is no longer limited to the corporate side with lenders feeling the pinch on the retail business, according to a report by the Boston Consulting Group (BCG) and Ficci.
From 2011 onwards, the banking sector witnessed a decline in retail non-performing assets (NPAs). However, the trend reversed last year when NPAs in the retail segment showed an uptick after a decline of three years.
According to the report, the sector saw a 10 basis-point growth in retail loans in 2014-15. With this, the retail gross NPAs inched up to 1.6 per cent by FY15-end compared to 1.5 per cent a year ago. In 2015, the quantum of gross NPA in the retail assets stood at Rs 11,62,578 crore. Even though it is significantly lower than the 3.2 percentage points in 2011, it is still a cause of concern.
It is the old private sector banks that have seen the highest level of stress.
According to the RBI classification, the old private banks include Catholic Syrian Bank, City Union Bank, Dhanlaxmi Bank, Federal Bank, J&K Bank, Karnataka Bank, Karur Vysya Bank, Lakshmi Vilas Bank, RBL Bank, South Indian Bank, and Tamilnad Mercantile Bank. These lenders put together have seen a stress of 30 basis points.
"Banks have beefed up bad debt management over the past few years but that has been mostly for commercial credit. The capabilities required to contain bad debt in retail are substantially different from commercial credit. The number of accounts is large, the amounts are small, rapid action is very critical and action steps have to be industrialised," said the BCG-Ficci report.
According to Saurabh Tripathi of BCG, the doubtful accounts must be pursued well in advance with analytical and predictive modelling.
However, the bankers don't believe it is a cause of concern. "We need to take a closer look at the number to determine how much of it is coming from the unsecured lending. As of now, the NPA in the retail segment is very low. So, if they are getting to a more normalised level now, we shouldn't worry," said Chanda Kochhar, managing director and CEO of ICICI Bank.
State Bank of India chairman Arundhati Bhattacharya, too, said banks don't need to worry about stress in retail loans now. "I don't think there is anything worrisome at all in the secured lending front. As unlike the US, most of the buyers here are first-time borrowers who are not buying for speculative purposes. Overall, there is no such big concern on retail lending."
This comes at a time when the overall stress on the bad loans are not showing any clear signs of abating. "Stressed assets in the financial system continue to be high, which holds back growth and new lending, even while dampening bank incentives to cut base rates," Reserve Bank of India Governor Raghuram Rajan said.
According to RBI's Financial Stability Report published in June, gross NPAs in the system had risen from 3.4 per cent in March 2013 to 4.6 per cent in March 2015. Overall stressed advances were 11.1 per cent of the total this March, from 9.2 per cent in March 2013.
Rajan explained the steps taken by the central bank to ensure early recognition and speedy resolution of NPA. In this regard, RBI has asked banks to set up a Joint Lenders Forum (JLF), which allows banks to come on a common platform to tackle the issue. However, some changes in this regard to improve the functioning of JLF is expected soon, said Rajan.
