Retail NPAs may go up to 4% by Mar '09

The increase in exposure to high risk customers (like credit cards) and upward march of interest rates have dented the quality of retail loan portfolio of Indian financial sector players.

Consequently, the gross non-performing assets (NPAs) in retail loans may rise to 4 per cent by March 2009 from 2.7 per cent in 2007, according to a Crisil study.

The outstanding retail portfolio of Indian financial sector "" banks, non-banking finance companies (NBFCs) and housing finance entities "" stood at Rs 6,00,000 crore by march 2007.

The retail segment, which saw growth momentum from 2004, consists of housing advances, vehicle loans, personal loans and credit cards. 
 

TOP LINE Gross NPAs for retail loans
Year	In %
Mar-06	2.1
Mar-07	2.7
March 2008*	3.3
March 2009*	4.0
* Projected  Source: CRISIL estimates

The year-on-year retail portfolio growth in 2003-06 period was over 30 per cent and is expected to moderate to a 20-25 per cent (y-o-y) in the next 2-3 years.

Though NPAs may grow in percentage terms, the situation will remain manageable as secured loans such as mortgage and vehicle loans account for nearly 80 per cent of retail loan portfolio, the rating company said.

The increasing exposure to high risk customers is mainly through personal loans and credit card receivables.

These are unsecured and account for 17 per cent of the total outstanding retail loans in March 2007, up from 6 per cent in 2004.

Housing loans constitute over half of the total retail loans in India. The gross NPAs in home loans increased to 2.2 per cent in March 2007 from 1.8 per cent in 2005.

These are expected to increase to 2.7 per cent in financial year 2008-09.

For public sector banks, the incidence of NPAs is higher in home loans and for private banks it is higher in vehicle and unsecured loans segment.

Between 2004 and 2006, public sector banks tried to increase their exposure to home loan sector by lowering their credit assessment standards, thereby raising chances of delinquency.

Their collection and recovery mechanisms were also not good. In 2006-07, these banks tried to improve underwriting and recovery standards through centralised loan processing units and use of provisions in SARFAESI Act to recover home loan dues, Crisil said.

The car and commercial vehicle asset segments comprise one-third of the total retail loans. The gross NPAs in these segments have increased to 2.3 per cent and 4 per cent respectively as of end March 2007.

In 2008-09, these numbers are seen at 3 per cent for car loans and 5.5 per cent for commercial vehicles, it added.