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Banking Central | HDFC Bank’s rising retail restructured loans hint at fate of other banks

There was an aggressive shift to retail loans after Covid, but for big banks this is turning to be a tricky change. The latest restructuring numbers of HDFC Bank give evidence of fresh round of stress in the retail segment.

October 18, 2021 / 10:44 AM IST

On July 24, a Moneycontrol report  had highlighted how an aggressive retail bet of banks in the Covid phase could prove to be risky if the economy took longer to wriggle out of the pandemic blues.

A look at the first-quarter numbers for HDFC Bank, the largest among the private lenders, confirms the rising stress built up in the retail loan division.

While slippages declined, incremental restructuring rose to 1.2 percent of the loan book. Incremental stress, as a consequence, remained stable on a quarter-on-quarter basis at 4.5 percent.

Total outstanding restructured loans, including one-time restructuring (OTR) schemes, stood at Rs 20,300 crore or 1.7 percent of all loans.  Personal unsecured loans accounted for about 81 percent of the round-2 restructuring, where the bank rejigged personal loans of 11 percent under OTR-2 compared with 5 percent under OTR-1.

But what does it imply? The high incremental restructuring in the personal loan portfolio is indicative of the Covid impact on the retail customer, although the management sounded confident that slippage from the restructured book will be restricted to 10-20 basis points eventually.


HDFC Bank is considered to be one of the most conservative lenders, hence, it is safe to take its restructuring numbers as an indication for the rest of the industry, though clarity will emerge only after other major banks report their numbers.

Why the retail bet is going wrong?

The reasons for higher restructuring in the personal loan book isn’t hard to understand. There has been a sharp jump in the rate of job losses in the country. Also, small businesses have been struggling. All this have had a telling impact on the repayment ability of borrowers.

To give a perspective, the country’s unemployment rate worsened in the week ended October 10, latest data from private think tank Centre for Monitoring Indian Economy (CMIE) showed. The all-India weekly unemployment rate inched up to 8.86 percent in the week to October 10, weeks after the joblessness rate hit a six-month low of 6.86 percent in September.

The stress in the retail loan segment was contained in 2020 due to the blanket six-month moratorium on both interest and principal components but this year, there is no moratorium cover for individual borrowers. Hence, the stress build-up is clearly showing. Rating agencies have already red-flagged the stress build-up in retail loans.

India Ratings estimates the overall stressed assets in retail to touch 5.8 per cent of the total advances by the end of this fiscal year from 2.9 per cent a year ago. There was an aggressive shift to retail loans but for big banks this is turning out to be a tricky change. The latest restructuring numbers suggest that the bet may have gone wrong to some extent.

[Banking Central is a weekly column that keeps a close watch and connects the dots about the sector's most important events for readers.]

Dinesh Unnikrishnan is Deputy Editor at Moneycontrol. Dinesh heads the Banking and Finance Bureau at Moneycontrol. He also writes a weekly column, Banking Central, every Monday.
first published: Oct 18, 2021 10:44 am

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