While retail facing banks are feeling the heat, corporate lenders are in a much better place.
Vaibhav Agrawal – CIO, Teji Mandi
Last decade of the banking industry has been a decade of retail growth. Banks with stronger retail portfolios- the likes of HDFC Bank and Kotak Mahindra Bank – enjoyed superior asset quality. On the other hand, banks that leaned over corporate banking- ICICI Bank, Axis Bank and SBI had a tough time dealing with rising levels of stress.
After an interrupted run over a decade in favour of retail landing, a new order is seen emerging post-Covid-19 where the cycle has started to turn in favour of corporate lenders. Private banks have reported rising levels of slippages in their retail portfolios with major stress coming from unsecured loans. Their profitability has shrunk and provisioning requirements have inched up on account of higher slippages.
While retail facing banks are feeling the heat, corporate lenders are in a much better place. It can be ascertained from their Q1 performance. For instance, ICICI Bank has reported improvement in their corporate portfolio quality after the deterioration of over the last four years. Its slippages have declined by 50 percent YoY, resulting in lower provisions. Corporate portfolios across the banking system have gone through an extensive clean up. As a result, banks are now holding better rated assets and only negligible stress is left unrecognized.
Stressed Sectors Deleveraging
Major deleveraging exercise in the stressed sectors has also helped in reducing the stress on corporate books of the banks. Major stressed sectors like power and mining have seen debt levels coming down, benefiting from various government schemes provided in the last couple of years. Steel is another highly debated sector that has taken up major deleveraging exercise, using the recent upcycle in steel prices to its advantage. A combination of these factors helps in building the confidence that banks are now through a painful cycle in the corporate segment.
Closing Comments
While the overall stress on the corporate book has receded, the retail non-performing loans (NPL) book is under pressure due to the subdued economic activities and reduced job opportunities. Unsecured loan products like credit cards and personal loans and other secured loan products like Vehicle and gold loans have emerged as a major pain point where collections efficiency is yet to improve.
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