Bad loans in the retail segment may rise in March, June quarters says ARC chief

Bad retail loans from banks are likely to increase as some restructured loans could again become non-performing assets, said RK Bansal, MD and CEO, Edelweiss Asset Reconstruction Company (EARC).

To minimize losses, we see banks transfer their bad loans to asset rebuilding companies (ARC) and the figure is rising.

According to ARC industry data, approximately ₹2,000 crore of the main book balance was allocated to ARCs in FY20 in FY20, while the figure rose 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 private lending segment had gradually improved over the past six months, with the exception of a peak in January due to the third wave of COVID-19, ARC industry executives said.

“Two things have happened during this period: collection has improved and there have also been restructurings of some private loans by lenders,” Bansal said.

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

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

According to Trans Union-Cibil data: [provided by EARC]as at September 30, 2021, the GNPA ratio in secured mortgages (home loans, loans against real estate) was 3.7%, while in the case of secured, non-mortgage loans (car and gold loans) the ratio was 9.6% .

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

In less than three years, EARC said it had seen its retail portfolio grow with the acquisition of principal of about 7,000 crore from a large number of banks and NBFCs that had assigned their NPAs to ARCs, both in cash and through the Security Proofing Route.

The retail portfolio includes caring for a large number of ailing borrowers in various geographies who may have experienced aggravated economic hardship due to the pandemic.

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

“We have witnessed a drop in reparations, an alarming situation with an increase in the number of borrowers in recent years, a slowdown in people’s movement and litigation,” he added.

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