Debt Recast Under Second Covid Window Jumps For Private Banks
India's top private lenders restructured more loans under the central bank's second Covid-19 debt recast scheme.
These banks restructured loans worth Rs 38,540 crore under the second restructuring scheme announced by the Reserve Bank of India in May, bank disclosures show. That was 57% higher than the first such window, according to BloombergQuint's calculations.
Of the total loans restructured under the second window, more than half—or Rs 22,379 crore—were retail loans, data disclosed by these lenders showed. That compares with Rs 9,303 crore under the first window announced in August 2020.
Cumulatively, these banks have now implemented recast schemes for loans worth Rs 63,045 crore in two phases.
The second window was announced by the banking regulator to aid retail and small-business borrowers to tide over the impact of the second Covid-19 wave at the beginning of the financial year. It allowed lenders to extend repayment schedules by up to two years.
Three Banks Lead The Charts
HDFC Bank alone added recast loans worth Rs 17,398 crore. Of this, more than Rs 14,000 crore belonged to individual retail borrowers, while individual business borrowers added another Rs 1,500 crore. Cumulatively, through the two RBI windows, the bank has restructured loans worth Rs 25,228 crore as on Sept. 30.
It's not just the level of restructured loans which is worrying.
Of the Rs 7,830 crore restructured under the first window by HDFC Bank, Rs 1,687 crore worth of loans slipped into the non-performing category as on Sept. 30. Most of these NPAs—about Rs 1,283 crore—came from retail borrowers.
"Based on the analysis that we have done so far, we don’t think the impact would be more than 10 to 20 basis points on our NPAs at any given point in time," Jimmy Tata, chief credit officer at HDFC Bank, had told analysts after announcing the lender's second-quarter earnings.
In the case of ICICI Bank, which added Rs 4,158 crore worth of restructured loans under the second window, Rs 3,030 crore came from retail accounts. And it was significantly higher than the first round.
A bulk of the restructured loans came from the home loan, loans against property, commercial vehicle and vehicle finance books, the bank had disclosed.
While addressing analysts after the bank's quarterly results, ICICI Bank's Chief Financial Officer Rakesh Jha said there were a handful of retail borrowers who were still in the process of going through the implementation phase under the restructuring scheme.
"But in the overall context, it is not going to be any material number I would say. It will definitely be less than Rs 10 billion (Rs 1,000 crore)," Jha told analysts. "That's what is there in terms of the pipeline."
Bandhan Bank also added over Rs 8,000 crore worth of restructured loans under the second window, compared with Rs 696 crore in the first scheme. Most of the loans recast under the second window came from the bank's individual business book.
What Experts Say
That retail and small-business borrowers have borne most of the brunt of the second wave of the Covid-19 pandemic is known. But the numbers released by these banks show the extent of pain.
The stressed retail portfolio for the banking industry, which includes non-performing assets and restructured loans, could rise to 4-5% of the book by the end of the year from 3% as of March 2021, Crisil Ratings Ltd. estimated in its Oct. 19 report. In case of small and medium enterprises, the stressed book may rise to 17-18% from 14%, it said.
“While the performance of the restructured portfolio will definitely need close monitoring, the slippages from the restructured book are expected to be lower this time," said Subha Sri Narayanan, director, Crisil Ratings.
Recent trends indicate that restructured retail borrowers are making payments as their cashflows return to normalcy, but MSME borrowers are likely to take longer, Narayanan said.
Amit Khurana, head of equities at Dolat Capital, agreed.
"Indian retail borrowers tend to not default on repayments unless the situation is very dire. We are biased to believe that these restructured loans should come back to standard repayment cycles, even though the turnaround may take longer than the retail crisis of 2008-09," Khurana said.
Anand Dama of Emkay Global, however, prefers to be cautious.
"It is very difficult to judge the outcome of these restructured loans at this juncture," Dama said. "Banks with a higher proportion of secured restructured loans may well see repayments normalise, but those with unsecured loans will likely see some extended pain."
In the rest of the financial year, he expects retail and MSME stress to dominate bank books.