The extent and nature of inter-state lockdowns will impact credit growth for banks and non-banks by around 140-160bp, analysts at Emkay Global Financial Services said.
The second wave of outbreaks of Covid cases in India could pose a greater risk to the growth of banks’ lending than to the quality of their assets, analysts said. The extent and nature of inter-state lockdowns will impact bank and non-bank credit growth by around 140 to 160 basis points (bps), analysts at Emkay Global Financial Services said. Industry experts expect the Reserve Bank of India’s (RBI) latest round of relief measures to support asset quality.
Severely affected states account for around 48% of retail credit and 56% of overall credit, according to Emkay’s estimates. The categories of self-employed workers will suffer most of the localized lockdowns. “We estimate that within retail assets (~ 31% of global credit), the self-employed category represents almost a third – although the impact will be largely limited to BL (business loan) / LAP (loans against real estate) and to MFIs (microfinance), ”says the report.
Commercial vehicle (CV) loans are likely to resist and the transport of goods remains free. Most banks continue to remain invested in secured loan categories, especially mortgages. Shanti Ekambaram, group chairman – consumer bank, Kotak Mahindra Bank, told analysts last week that home loans would continue to be an area of major focus for the lender. “February and March were also our best months at LAP. This is traditionally an area where we have done well, both in terms of market share and credit quality, and we will continue to consolidate and grow our share, ”she said.
According to Emkay, loans to small and medium-sized enterprises (SMEs) are the most exposed to the risk of the credit crunch. Brokerage assumes around 50-70% demand destruction for self-employed-oriented products and 25% for salaried-class-oriented products during the lockdown.
In the small business and retail segments, experts anticipate a peak in restructuring in the absence of a moratorium such as in FY 21. India Ratings and Research said in a recent report: “As a result of these (RBI) as well as the Credit Linked Emergency Guarantee Scheme (ECLGS), borrowers could overcome temporary liquidity problems, although slippages in unsustainable assets may spread into FY22. FY25. “
At the end of February 2021, India Ratings estimated that banks had sanctioned refoundings worth 2.46 lakh crore to beneficiaries. In addition, Rs 45,000 crore in advances has been restructured by the end of March 2021. Non-banks, especially those in the auto finance sectors, medium and large LAPs and unsecured commercial loans, would make extensive use of the new restructuring framework, India Ratings said.
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