Loans to corporates, which had grown to a multi-quarter high of 5.65% in the March 2020 quarter before the onset of the pandemic, slumped by 1%, 1.6% and 1.4% in subsequent quarters reflecting “risk-aversion and muted demand,” according to the central bank’s bi-annual Financial Stability Report.
“With the onset of COVID-19, retail credit growth (y-o-y) has suffered, while wholesale credit growth has held up though at low levels,” according to the report.
“With stress tests pointing to deterioration in asset quality of banks, early identification of impairment and aggressive capitalization is imperative for supporting credit growth across various sectors alongside pre-emptive strategies for dealing with potential NPAs,” it said.
Meanwhile, the demand for smaller-ticket retail loans remained subdued even during the thick of the pandemic reflecting a marked slowdown in the consumer economy with the purchase of houses to consumer durables being put on hold by households across the country.
The enquiry volumes for retail loans fell as much as 34%, 21% and 14% respectively in the June, September and December quarter against the same period of last year, predominantly due to subdued demand for new loan originations recorded at private banks and non-banking financial companies.
“The overall demand for consumer credit as reflected in inquiry volumes, however, remains depressed since the onset of the pandemic,” according to the FSR.
Approval rates for consumer loans too varied among lenders, reflecting risk-averseness practiced by different categories of lenders. While public sector banks approved 47% of loan applications in the September quarter, private banks and NBFCs approved just 36% and 25% of the retail-oriented loans respectively.
“The approval rates were low during the first quarter of FY21 but they have improved subsequently, especially for PSBs. Inquiry volumes by risk tier also show a distinct improvement in favor of better rated consumers,” the FSR said. “Nevertheless, the growth in overall loan balances has moderated considerably after March 2020.”
In sharp contrast, the MSME sector recorded a robust growth in inquiry volumes post the peak lockdown June quarter as credit hungry enterprises reached out for working capital to stay afloat, data from the report indicated.
After a 43.1% fall in enquiry volume in the Q1FY21, the enquiry volumes bounced back to a year on year growth of 12.1% in the subsequent quarter as the lockdowns eased and business resumed for most sectors.
However, the sector continued to exhibit high degree of stress despite targeted relief measures by both the government and the central bank.
“The growth (y-o-y) in balances remained sluggish, with pullback in terms of balances outstanding seen in cases of PSBs and NBFCs,” the FSR stated. “Further, over 90 days past due balances indicate much higher overdue levels than in the retail sector, even with the camouflages of regulatory reliefs.”