Retail loans have for long been perceived to be safe, but recent data sets released by companies and the Reserve Bank of India show that retail delinquencies of non-banks are on the rise. Consumption-financing behemoth Bajaj Finance too has admitted that credit quality in categories such as two and three-wheeler financing and digital products has worsened to such an extent that the company is imposing growth curbs.
Slowing growth, rural distress and the reduced ability of households to meet liabilities is beginning to show up on the books of non-banking financial companies (NBFCs) and housing finance companies (HFCs), with asset quality in their retail portfolios deteriorating in the June quarter. Rajeev Jain, MD of Bajaj Finance, said in late July that these two categories, which contribute 11% to the firm's loan book, have been moved from 'green' to 'yellow', indicating a rise in risk perception. "We've been taking actions since the last four-five months, but we've taken harder action in the last two months, and it's (digital products) a very short-term portfolio in general," Jain said. In the two- and three-wheeler portfolio, the share of loans with dues unpaid for over 30 days rose to 5.3% in Q1FY20 from 4.65% in Q4FY19, while in the digital products portfolio it rose to 1.46% from 1.01% over the same period.
Earlier this year, the RBI in its financial stability report (FSR) had observed that NBFCs as a group have been found to be leading delinquency levels in almost all sub-segments of consumer credit when the uniform delinquency norm of 90 days past due (dpd) is applied. The spike in delinquencies could be a fallout of the exponential growth seen in consumer credit over the last few years, it had said. Housing Development and Finance Corporation (HDFC) saw the gross non-performing asset (NPA) ratio in its individual loan book rise to 0.72% in Q1FY20 from 0.7% in Q4FY19 and 0.66% a year ago. LIC Housing Finance's bad-loan ratio in the retail book shot up to 1.26% from 1.1% at the end of the March quarter and 0.8% at the end of June, 2018. Can Fin Homes' gross NPA ratio at the end of June, 2019 stood at 0.73% at the end of June, 2019, up from 0.62% a quarter ago and 0.66% a year ago. Nearly 90% of its loan book consists of loans to individuals.
HFC managements have so far refused to attribute the spike in delinquencies beyond seasonality. Speaking to analysts after LIC Housing Finance's Q1 results, MD and CEO Siddhartha Mohanty said, "This is the first quarter and I don't see any specific reason. It is just seasonality and some loans if they don't pay within three months, they pay next month. So, those also slip, but in individual loans, there will be some NPA but our effective monitoring and all those things are there." PNB Housing Finance, whose retail bad-loan ratio rose to 0.79% in June from 0.67% in March, said that a 20-basis point (bps) rise between Q4 of one year and Q1 of the next year is a routine phenomenon. "And this is just a replica of that because once again, accounts which are recalcitrant with us and have sort of being a little problematic on the collection front, you let them flow into stage three bucket so that we can take legal action. So it is by design, more or less."
Mahindra Finance also saw its gross NPA ratio shoot up to 7.4% in June from 5.9% in March, even as it improved significantly from 9.4% a year ago. Analysts at Edelweiss Securities said stress was higher at the company’s rural home-finance subsidiary.
"The NPAs in rural housing subsidiary is higher (~16%) due to exposure to Maharashtra, excluding which the NPAs would be ~7% which is normalised level for this kind of business," the broking firm said.
Shriram Transport Finance's bad-loan ratio rose to 8.52% in Q1FY20 from 8.37% in Q4FY19, while improving from 9.06% in June 2018.