Financial Stability Report: Lenders See Retail Loan Stress Inching Up
Retail loans by private banks and auto financing by NBFCs saw higher fresh NPAs in FY24.
Despite the general trend of improving asset quality, banks and non-banks are seeing rising stress in their retail loan books.
As of March this year, retail non-performing assets as a share of fresh NPAs for private sector banks rose to nearly 40%. These are retail loans, other than housing loans. In September, this ratio was under 35%, the latest Financial Stability Report states. Even in the case of public sector banks, the bad loan ratio for this category of loans at the end of the last fiscal year was higher than in September.
However, the contribution of retail NPAs to overall fresh NPAs is much smaller for public sector banks, at around 10%.
In the case of non-bank finance companies, the gross NPA ratio for retail auto loans was higher at 5% as of March 2024, while all other retail components showed NPA moderating to 3% or lower. Overall, retail NPAs for NBFCs stood at 3.1%. According to details given in the Financial Stability Report, retail loans account for 26.4% of all NBFC loans.
In November, citing certain worrying indicators in the lending ecosystem, the RBI introduced higher risk weights for unsecured retail credit by banks. The RBI also introduced higher risk weights for bank lending to NBFCs, where the on-lending happens in the unsecured space.
As a direct result of these new rules, banks and NBFCs witnessed some slowing in unsecured retail loan growth. For banks, sequential growth in retail lending fell from 4.4% in June 2023 to 2.9% in March 2024.
Retail lending by NBFCs recorded some moderation in growth in the last six months of FY24, to 14.8% from 16.6% a year before. The share of unsecured loans extended by the NBFC sector fell from 32.2% of total loans to 22.9% over this period.
