Sectoral analysis of the private bank’s portfolios shows that bad loans have been relatively high in auto loans, personal loans and commercial vehicle segment as the Covid-19 pandemic and lockdowns to control its spread impacted people’s incomes and their capacity to repay loans.
Gross non-performing assets (GNPA) in the auto loan segment almost doubled to 3% in FY21 from 1.6% in the previous year. Bad loan ratio in personal loans and credit cards segment more than doubled to 1.8% from 0.8%. Impaired loans in commercial vehicle and commercial equipment loans rose to 4.1% from 3.2% in FY20.
Housing loans saw marginal rise in bad loans of nearly 30 basis points at 0.7% for the year ending March 2021 while bad loan ratio in business banking improved to 1.6% from 2% in FY20.
A loan is classified as bad loan or NPA when a borrower delays payment beyond 90 days.
“Asset quality (of HDFC Bank) has deteriorated within retail segment while wholesale segment has remained strong,” said Nitin Aggarwal, institutional research — banking and insurance at brokerage firm Motilal Oswal Securities. “Segmental analysis suggests that the credit cost for retail segment has been high and increased about 43 basis points in a year.”
Credit cost is the amount banks expect to lose due to credit risks.
HDFC Bank’s credit cost for the retail segment stood at 2.3% as of March 2021, analysis by Motilal Oswal showed. Within this segment, credit cost for auto loans increased by 110 basis points year on year to 2.5% while CV/CE loans witnessed an increase in credit cost to 2.8% from 2.1% in FY20.
Credit costs for personal loans and credits cards saw the sharpest rise at 4.4% in FY21 versus 2.3% in FY20.
Retail bad loans continued to spike for most banks, including HDFC Bank, in the quarter ended June with high slippages and restructuring amid a devastating second wave of the pandemic that impacted borrowers’ capacity to repay loans and forced lenders to halt collection efforts as Covid-19 cases hit new highs in most states.
HDFC Bank’s bad loans inched up in the quarter with several smaller-ticket loans turning into NPAs. Restructured assets stood at 80 basis points of total advances, a bulk of it led by the retail portfolio. Also, two-thirds of the retail restructured loans came in from the unsecured assets category.
ICICI Bank, which has seen its retail non-performing loans hit a seven-year high at about 3.8% in the June quarter, said it will exercise increased caution on retail book asset quality going ahead.