The second quarter of the current fiscal could see a surge in an auction of retail assets by lenders, particularly jewellery and cars offered as collateral for loans. Although there has been an increase in retail delinquencies in the first quarter, lenders have not seized or auctioned assets because of the pandemic. With the economy now opening up, recovery action is likely to pick up.
“We did postpone quite a bit of normal collection activity. This includes auctions that we might have done of collaterals that we normally can quickly do and collect. We have not done any asset sales or any restructuring in the last quarter,” said HDB Financial Services MD & CEO G Ramesh in an analyst call for HDFC Bank. He added that there has been an improvement since the end of June and early July as customers like to come back on track.
“In the jewel loan portfolio, if the loan goes overdue, you send auction notices to customers. In the current environment, we have not done that in April and May and a large part of June as well,” said
chief finance officer Rakesh Jha in an analyst call. He added that the bank has now started doing that in July and has already started to see recoveries from these portfolios.
According to RBI data, loans against jewellery by banks stood at Rs 62,221 crore as of June 18, 2021 — an 80% increase over the previous year. Even in the first quarter, loans grew 2.5% despite the second wave. Auto loans had shown a jump of 11% year-on-year at Rs 2,38,214 crore.
Last week, another private lender Bajaj Finance said that there was an increase in auto loan delinquencies due to defaults in its three-wheeler loan portfolio. The company’s MD Rajeev Jain said that since the assets were repossessable, the lender might see better recoveries. Fitch Ratings said the second wave of Covid will continue to exert near-term pressure on non-banking finance companies (NBFCs). “Non-performing loans (NPLs) are likely to rise, as renewed activity restrictions have impaired borrower repayment capacity. Collection shortfalls are better than a year ago, but remain significant — 5-40% across various lending segments in April and May 2021,” the rating agency said.
Bankers said that while the pandemic impact has been severe, there have not been many defaults in the corporate segment. The SME segment was protected because of the Emergency Credit Line Guarantee Scheme (ECLGS), which had a one-year moratorium that ends in the second quarter. As a result, most of the defaults were being seen in the retail segment.