Retail asset quality weakens: Study

The asset quality of retail loans in India is deteriorating because of increasing exposure to higher risk customers and rising interest rates. The gross non-performing assets NPAs in retail loans, which increased to about 2.7 per cent as of March 2007 from about 1.7 per cent as of March 2005, are likely to rise to 4 per cent over the next two years, as per Crisil figures. However, the situation will remain manageable because secured loans such as mortgage and vehicle loans account for 80 per cent of lenders8217; retail loan portfolio. The increasing exposure to higher risk customers is mainly through personal loans and credit card receivables.

According to Crisil MD and CEO Roopa Kudva, as competition has increased, players in retail lending are reaching out to hitherto untapped clients, such as the self-employed and borrowers from smaller cities. This has increased lenders8217; exposure to risk. While expecting this trend to continue, Crisil believed that a reasonable definition of 8216;sub-prime8217; in the Indian context could include small-ticket personal loans that are given to low-income customers.

Crisil estimates that gross NPAs in these segments have increased to 2.3 per cent and 4 per cent as of March end 2007, in 2008-09, these numbers are seen at 3 per cent for car loans and 5.5 per cent for commercial vehicles. According to Raman Uberoi, senior director 8211; Ratings, September-October 2007 saw a spike in delinquencies because of the slowdown in recovery efforts, following the controversy over the recovery methods of some lenders. A possible fallout of this controversy could see some players exit small-ticket personal loans.

Rise and Rise

8226; India8217;s 8216;sub-prime8217; is defined as small-ticket personal loans given to low-income customers

8226;NPAs increased for retail loans to 4 from 2.7 last year

8226; Recent contreversial methods adopted by lenders for loan recovery shall lead to the exit of some players in small-ticket personal loans