Bad debts in retail segment could rise in March and June quarters, says CRA chief

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Retail banks’ bad debts are expected to increase as some restructured loans may again turn into non-performing assets, said RK Bansal, managing director and CEO of Edelweiss Asset Reconstruction Company (EARC).

To minimize losses, banks are offloading their bad debts to asset reconstruction companies (ARCs) and the figure is on the rise.

According to ARC industry data, in FY20, around ₹2,000 crore of main book balance was allocated to ARCs in FY20 while the figure increased to 6 ₹500 crore in FY21.

In the first 9 months of FY22, approximately ₹7,000 crore of main book balance was allocated to ARCs. However, the situation in the retail lending segment has gradually improved over the past 6 months, except for a spike in January due to the third wave of COVID-19, industry executives said. CRA industry.

“Two things happened during this period: there was an improvement in collections and there was also a restructuring of some retail loans by lenders,” Bansal said.

“However, some of these restructured loans could turn bad again, which will be reflected in the numbers for the March and June quarters,” he said.

Of the 7,000 crore bad loans that had been sold to the ARCs in the first nine months of FY22, about 50% had been acquired by the EARC.

According to data from Trans Union-Cibil [provided by EARC]As of September 30, 2021, the GNPA ratio in secured mortgages (home loans, loans against property) was 3.7% while in the case of non-mortgage secured loans (auto loans and gold) the ratio was 9, 6%.

For unsecured loans such as personal loans, education loans, outstanding credit cards and consumer loans, Mudra and MFIs, the GNPA ratio was 8.47%.

In less than three years, EARC said it saw its retail portfolio grow with the acquisition of principal dues of around ₹7,000 crore from a large number of banks and NBFCs who had allocated their NPAs to ARC, both in cash and through the Security Receipts Route.

The retail portfolio involves taking care of a large number of distressed borrowers in all geographies who may have gone through economic difficulties exacerbated by the pandemic, he said.

“The country is facing a catastrophic situation for an extended period of two years due to Covid-19 which has affected everyone including us,” Bansal said.

“We have seen a drop in the number of collections, a difficult situation with increasing borrowers in recent years, a slowdown in the movement of people and the litigation machinery,” he added.

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