Stress in Banks’ Retail Loans to Increase in FY 22

As per the credit rating firm ‘India Ratings & Research’ (Ind-Ra), the retail loan sector’s stress could increase threefold within the end of FY22. This spike could be because of the slowdown in income growth and drop in job creation amidst the service sector.

There is an anticipation that stressed loans via retail advances might increase to 4.7% of the total in March 2022, which will be 1.60% in March 2021. This could happen due to the decline in unsecured loans, particularly in private sector banks.

The private sector banks are most likely to face higher slippages out of retail loans since the total stressed loans increase threefold, mostly due to their share in unsecured loans. Despite the rise in stressed loans, retail will persist in pushing credit growth concerning banks with a 15% to 20% growth in the following fiscal.  Retail will continue to drive credit growth considering the demand amongst consumers for buying vehicles and properties even when the banks are tightening their credit appraisal process.

The agency also anticipates that the banks’ credit costs could dip to a multi-year low of 1.5% of loans in FY 22 from 2% in FY 21, half of 4% in FY 18. Gross non-performing assets (NPAs) concerning the banking system will probably increase to 10.1% in March 2022, which will be at 8.8% during the end of the current fiscal. However, higher provision coverage ratios and pre-operating profits will assist banks in managing the stress.

The public sector banks’ position has also been changed to stable from being negative in FY22 because of the banks’ capital position, lower-than-anticipated pandemic stress, higher provision coverage, and negligible surprises from the public sector bank mergers.

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