Slippages from gold loans rise for private banks in Q1

MUMBAI: While private banks reported healthy profits for April-June 2021, there has been a sharp spike in retail slippages, especially from gold loans and the farm segment, as the Covid second wave hit repayments. So far ICICI
Bank, HDFC Bank, Federal Bank and CSB that have announced their Q1 earnings have seen a spike in retail slippages, particularly from gold loans.

On the positive side, banks' managements have commented that the collection trends for July seem close to normal/pre-Covid levels and would reflect in performance from Q2. On the other hand, public sector banks that have so far declared their Q1FY22 earnings have relatively fared better than their private peers.

Asutosh Mishra, head of research at Ashika Stock Broking said, "We have seen higher slippages for private lenders largely from their retail book,
especially gold loans as the Loan to Value ratio for gold loans has moved back to 75 per cent from 90 per cent (RBI regulations).

Customers didn't pay the excess amount because of the lockdown. Gold loans are mostly serviced on an individual basis and not online. There were higher delinquencies also in the commercial vehicle segment. Private banks slippages were higher than expectations. On the other hand, state-owned Bank of Maharashtra and Indian Bank fared relatively better as there were no issues in the corporate loans."

On Saturday, the country's largest private sector bank ICICI Bank reported
Rs 7,231 crore of fresh slippages during the Q1FY22 compared with Rs 5,523
crore in the previous quarter. Speaking to reporters, Sandeep Batra executive director ICICI Bank, said, "Of the Rs 7,200 crore slippages, Rs 6,700 crore were retail slippages and out of these Rs 961 crore was from Krishi credit card loans and Rs 1,130 crore was jewellery loans; SME and corporate segment slippages were at Rs 458 crore."

Batra said jewellery loans are fully secured and the losses are negligible.
He said that the bank is not worried about the retail book and that the corporate segment, which had been one of the worst affected for the system in the past, is not seeing any stress. "A significant part of the gold loans will come back. These loans slipped mostly in April and May because of the lockdown and its more of a collection issue. June is better and July seems to be better than June," added Batra.

A loan becomes NPA if there is no repayment of interest or principal for a
period of 90 days. HDFC Bank that had reported its Q1 earnings reported a flat growth in retail loans, lower fee income and elevated slippages--at 2.54 per cent versus 1.6 per cent in FY21 and 2.1 per cent in FY20.

"These (Covid) disruptions led to a decrease in retail loan originations, sale of
third party products, card spends and efficiency in collection efforts. The
lower business volumes, coupled with higher slippages, resulted in lower revenues, as well as an enhanced level of provisioning," HDFC Bank said
in a statement.

Kerala-based Federal Bank saw its asset quality deteriorating in the April-June quarter, of led by stress in the gold loans and small enterprises segments. Federal Bank's total slippages rose to Rs 640 crore in the quarter from Rs 598 crore in the preceding quarter. "There are some pockets, such as gold loans, where usually slippages are almost non-existent. This quarter, given the extended lockdowns in certain geographies and the challenges clients were
facing, we did not want to, beyond a point, push customers to make the payments. So if they could not, they were either restructured or became
NPA," said Shyam Srinivasan, MD & CEO, Federal Bank. The bank's gold loan slippages stood at Rs 50 crore (0.3 per cent of the portfolio), and another Rs 35 crore worth of retail accounts linked to gold loan borrowers were
also recognised as slippages. Fresh bad loans in business banking, which
includes loans to small enterprises, increased to Rs 169 crore from Rs 73
crore in the previous quarter. Federal Bank restructured gold loans worth Rs
200 crore and business banking accounts worth Rs 339 crore.

Similarly, south India-based CSB Bank witnessed reverses in asset quality, especially the largest segment of gold loans. The overall slippages came at
Rs 423 crore for the quarter, of which gold loans were at Rs 337 crore. Its
MD &CEO C. V. R. Rajendran said the bank did not press recovery efforts on loans despite the collection rates dropping to only 20 per cent. He said
the advances overdue for 30 to 89 days stand at over Rs 320 crore.

Similarly, South Indian Bank saw its gross NPAs jumping to 8.02 per cent of
the gross advances as of June 30, 2021 against 4.93 per cent a year ago.