Sunday, June 20, 2021
Home > Finance News > Lenders brace for deterioration in asset quality metrics

Lenders brace for deterioration in asset quality metrics


Lenders are bracing for a further deterioration in asset quality metrics, cheque-bounce rates and collection ratios, anticipating a full month of strict lockdowns and curfews in May.

While payment rejection rates were back to January levels, they are expected to rise further in May, lenders told ET. Collection ratios will be hit by another 5-10% in the month as fresh Covid-19 infections continue to ravage the country.

“In the first week of April, as the surge in infections was limited to Maharashtra, we were able to present cheques, do decent amount of collections, but now this work has almost come to a standstill in some of our biggest markets and we fear that May could turn out to be one of the worst months as compared to the last two quarters,” said the CEO of a mid-sized lender.

The issue is deeper for nonbanks and small public and private sector lenders, whose customers are far more vulnerable. Early signs in April suggested that collection levels had already dropped to 10% for lenders and cheque-bounce rates had increased in segments like small and medium enterprises, commercial vehicles and microfinance.

“I think bounce levels could rise by another 3-4% while collection ratios could drop by nearly 5% in May alone,” said Rajiv Mehta, lead analyst at Yes Securities. “HDFC Bank has gone two months behind in terms of bounce rates,

and have seen lower collections. This month we expect we see a bigger hit because this will be one full month of lockdown.”

The impact of lockdowns was visible after

management corroborated that cheque bounce rates increased in April.

“Dishonoured cheques in April (half-way through the month) have risen slightly, possibly due to some panic caused by worsening medical conditions,” the bank said after its Q4 results.

Other banks, too, have turned cautious due to the rise in Covid-19 infections.

“We have not seen a slowdown in our early bucket collections but it’s likely to get impacted in the coming weeks, so we are watching the situation closely,” said Amitabh Chaudhry, MD of Axis Bank.

“Wherever there are localised lockdowns, there will be naturally some of kind of slowdown but we are comfortable with the quality of our book we have built,” said Sandeep Batra, ED at ICICI Bank.

India reported 392,488 coronavirus cases on Saturday, taking the total since the outbreak to 19.56 million. So far, the virus has killed 215,542 people.



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *

%d bloggers like this: