Retail loans no longer a safe bet for lenders as slowdown hits repayment by the salaried class
Banks have not seen significant delinquencies in home loans yet. For Bank of Baroda, delinquencies are less than 2% of its home loan portfolio.
Around 2-lakh job losses were reported in major services sectors during the past eight to ten months, according to a presentation by Rupa Rege Nitsure, chief economist, Bank of Baroda, quoting a survey, which she says is a challenge ahead. In the absence of any corporate demand, banks have been pushing retail loans, which rose 18% in September against 13% a year ago, according to the latest RBI data. Home loans have risen 20% against 11% in the same period last year.
“There are some early signs of job losses and delay in payment of salaries, which could affect consumer lending. We need to monitor the portfolios and manage risks proactively,” said Sunil Kaushal, chief executive for India and South Asia at Standard Chartered Bank.
Banks have not seen significant delinquencies in home loans yet. For Bank of Baroda, delinquencies are less than 2% of its home loan portfolio. “It is an area of concern. But we are a recent entrant in this segment and hence do not have a large portfolio,” said its chairman SS Mundra.
“We will be even more cautious in analysing the risks while lending to the salaried class,” Mundra said.
The impact of slowdown and job losses is still not very conspicuous and many banks are not treating them as an immediate threat to their balance sheets. “The scale of job losses is limited so far. If it gets bigger, then it will be a matter of concern. By and large, the salary increases this year have covered inflation.
Money in the hands of the public has not diminished,” said Romesh Sobti, MD and CEO, IndusInd Bank. “Individuals are saving less to meet consumption demand,” he said. If job losses become very common, it will impact personal lending and the risk will go up. “With recent job loss stories, we need to be more careful. There are certain products within retail, including gold and commercial vehicle, which are already under stress,” said Jairam Sridharan, president and head of consumer lending and payments of Axis Bank.
“In the commercial vehicle space, operators are being paid on time, which has led to stress in the portfolio for all banks. All banks are concerned and are monitoring their consumer portfolio withanxiety as it is a matter of time before corporate stress spills over to individual loans.