Covid-19 crisis: Banking credit shrinks 1.7% in May as lockdown bites

According to Reserve Bank of India (RBI) data, gross bank credit was down to Rs 91.08 trillion in May, from Rs 92.63 trillion in March.

Bank credit covering all segments — agriculture, industry, services, retail, and priority — shrunk by 1.7 per cent in May, compared to March. May was the second full month of the nationwide lockdown.

According to Reserve Bank of India (RBI) data, gross bank credit was down to Rs 91.08 trillion in May, from Rs 92.63 trillion in March.

On a year-on-year (YoY) basis, gross bank credit growth decelerated to 7 per cent in May 2020, from 11.5 per cent in May 2019, the RBI said in a statement.

Loans to industry — large, medium, small and micro — declined by 1.5 per cent in the two months to Rs 28.61 trillion in May. The micro and small segment showed a 7.6 per cent slump, medium size a decline of 5.4 per cent, and large segment a fall of 0.4 per cent.

The retail segment, covering categories like housing, credit cards, and vehicle loans, contracted 2.9 per cent (Rs 74,790 crore) in the two months. The outstanding retail credit stood at Rs 24.78 trillion. Credit card outstanding — a key segment of the retail category — declined by 14.1 per cent to Rs 96,978 crore in May, compared to Rs 1.08 trillion in March.

The housing loan portfolio also shrunk by 0.7 per cent to Rs 13.29 trillion in May, from Rs 13.38 trillion in March.

Bankers said the June quarter is usually lean, and this year the lockdown has only added to demand (for credit) woes. There has been some traction in credit following resumption in economic activity in some belts, albeit on a lower scale. Demand for working capital from the emergency credit line, however, has improved in June.

Karur Vysya Bank joins hands with Maruti Suzuki to offer car loans

The loans are available to both salaried and self-employed customers.

Karur Vysya Bank has entered into an arrangement with Maruti Suzuki to offer 100 per cent on-road finance with a six month holiday period at attractive interest rates. The loans are available to both salaried and self-employed customers. In an announcement, the bank said that it was expecting to leverage the new car retail network of Maruti Suzuki with around 3,086 outlets across 1964 cities and towns. KVB has a branch network of 780 across 22 states and union territories.

J Natarajan, president and COO, of Karur Vysya Bank said that easy availability of finance was a key driver during these times. The lender offers customers an in-principle loan sanction in 15 minutes and existing customers of the bank can get their loans disbursed on the same day. The entire process from application to disbursement of the loan is digitised with no manual intervention.

“About 80 per cent of the new cars are typically financed via a bank in India. In light of the current situation, when the country is facing the challenges posed by the Covid-19 pandemic, such customised finance solutions will help boost customer sentiment. Our association with Karur Vysya Bank is another positive step towards providing our customers financial flexibility and ease of owning a new car," said Shashank Srivastava, executive director (M&S), Maruti Suzuki India.

Following the pandemic spread in India, Maruti Suzuki has tied up with financial institutions, including HDFC Bank, to offer bouquets of flexible finance schemes for new car buyers. It has tied up with Cholamandalam Investment and Finance Company to provide customised auto retail financing solutions to retail buyers. The 'Buy Now Pay Later' offer is aimed at providing customers with a two-month deferment of EMIs in order to offer comfort to buyers, who might have faced a liquidity crunch during the Covid-19 lockdown.

Banking system is in a Catch-22 situation: Indian Bank's Padmaja Chunduru

Indian Bank has 450,000 MSME customers who are eligible for loans guaranteed by the government.

The Indian banking system is in a Catch-22 situation — balancing between credit growth and bad loans, said Padmaja Chunduru, managing director (MD) and chief executive officer (CEO) of Indian Bank.

Chunduru was speaking at a webinar organised by the Indian Chamber of Commerce (ICC) on quantitative easing and credit risk. “Banks are in a Catch-22 situation. If banks don’t give credit, there is a risk of failure of organisations. If banks lend too much, lending might take a hit on the balance sheet. Credit quality is a constraint, and we have to look at ways to assess risks in an uncertain environment,” she said.

However, the immediate concern for bankers was to manage the present situation, she added. Indian Bank has 450,000 MSME customers who are eligible for loans guaranteed by the government.

Chunduru’s views were echoed by Chandra Shekhar Ghosh, MD and CEO of Bandhan Bank. Banks are in a challenging spot as they need to balance credit growth with non-performing assets, he said. “Banks are in a very critical situation as on one hand they are required to assess the credit worthiness of customers, while on the other hand they have to balance it with credit growth.”

Credit growth should start picking up in the second quarter, said Ghosh. But, the biggest challenge would be to give credit to small enterprises which do not have any credit ratings.

While the schemes announced by the government to help the MSME sector are good in intent, the key lies in administering the same, said Rajesh Kumar, MD and CEO, TransUnion Cibil.

“There needs to be a tight monitoring mechanism for assessing MSME's cash flows and production cycles. We have created a Cibil MSME rank to provide risk differentiation," he said.

Worries over liquidity to boost credit card, personal loans: CIBIL

Unlike the slowdown a decade ago, demand for credit cards and personal loans will remain as consumers look to secure funds to bridge gaps in personal finance.

Demand for secured loans — home and auto loans — is expected to see a pronounced dip in the coming quarters as consumers look to stay liquid during the Covid-19 crisis. Products that provide liquidity like credit cards and personal loans will see moderate demand, according to credit information bureau CIBIL.

Unlike the slowdown a decade ago, demand for credit cards and personal loans will remain as consumers look to secure funds to bridge gaps in personal finance. Their availability and market penetration are higher than earlier.

The prevalence of fintech firms has also introduced new, flexible product structures and enhanced access via digital channels. Equally, because of the nature of the Covid-19 crisis, there has been an increase in the need for digital payments, which credit cards facilitate.

CIBIL said consumers are reducing discretionary spending, and they will cut down on travel. The demand for secured lending products like auto and home loans will likely remain weak for some time, it added. The lockdowns have had far-reaching implications. Consumers’ finances have changed dramatically, with many seeing pay cuts and lay-offs. There has been a sharp drop in consumer sentiment and consumption demand and spending have taken significant hits.

Abhay Kelkar, vice-president (research and consulting) TransUnion CIBIL, said the social, financial and economic impact of Covid-19 will be far reaching and will lead to a realignment of the retail credit market.

India’s retail credit market is still growing at a much higher rate than most others around the world. However, this is a global crisis and no economy is immune, Kelkar said.

Covid-19 crisis: Banks seek relaxed NPA norms, moratorium extension

Senior bank executives said the Indian Banks' Association (IBA) has already approached the Reserve Bank of India with a plea for easing regulatory norms.

Banks and financial institutions expect much heavy lifting through credit support, pegged at over Rs 11 trillion in FY21, in the days ahead. As a result, lenders have sought the easing of NPA norms, one-time restructuring, and extension of the moratorium till August-end for borrowers affected by the Covid situation.

Senior bank executives said the Indian Banks’ Association (IBA) has already approached the Reserve Bank of India with a plea for easing regulatory norms, so as to support borrowers hit by the outbreak.

The rule stating that loans unpaid for 90 days in a row will be categorised as non-performing assets (NPAs) needs to be relaxed. The IBA, a banking industry lobby group, has recommended that this period be extended from to 180 days for the current financial year.

In FY22, it could be restored to its original status in two stages. For first six months, loans due for 120 or more days and remaining unpaid for 90 days, will be treated as a bad loan. The RBI may announce its decision in the next few days.

This should also accompany the one-time restructuring of loans, given the concerns of borrowers go beyond liquidity. They now include viability and the capacity to change as well as survive in different business environments, in the post-Covid world, said bankers.

The three-month-moratorium is nearing its end (on May 31). This breathing space has been deemed inadequate and a further 90 days sought by the sector.

In addition, majority of government support under the Rs 20.97-trillion package, announced to deal with the adverse impact of the pandemic, is in the form of guarantees and interest subventions.

RBI's EMI moratorium could give Rs 2.1 trn liquidity to companies: Report

'Sectors with higher leverage will be major beneficiaries'

The Reserve Bank of India’s three-month suspension of EMIs could provide a liquidity breather of Rs 2.1 trillion if all corporate houses avail it, says a report.

The findings by Crisil Ratings are based on assessment of 9,300 of rated non-financial sector companies across 100 sectors.

It said sectors with higher leverage, such as power, telecom, roads, textiles and fertilisers, will be the major beneficiaries and account for nearly 47 per cent of the total breather available.

“The moratorium announced by the RBI on interest and principal obligations due between March 1 and May 31, 2020, would be tantamount to a liquidity breather of Rs 2.10 trillion if all companies opt for it,” the rating agency said in a report.

The amount was arrived at by considering total principal and interest falling due in the three-month period, it said.

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While the moratorium provides substantial benefit, actual salary payments will depend on liquidity available on the day of the payout, it said.

Information technology consulting firms and automobile makers have low leverage and will gain relatively less from the moratorium, the report said.

But they typically maintain high liquidity, which can be used to pay salaries, the rating agency said