hdfc bank: HDFC Bank’s retail asset quality takes a hit amid pandemic


Mumbai: HDFC Bank’s asset quality in the retail segment deteriorated significantly in the last financial year, with gross bad loan ratio rising 50 basis points to 2.3% as of March end from 1.8% a year earlier, its filings with the US regulator show.

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.


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