For every bank otherwise known as lenders, retail borrowers play a significant role in their functioning. If retail borrowers are stressed they will not be in a position to pay off the debts. In the present COVID-19 situation and subsequent lockdown, the retail borrowers have found themselves an extremely stressed section unable to repay their loan dues. This is a situation in which the retail borrowers are very widely stuck in financial troubles and require income due to loss of jobs etc.
Since the lockdown that started from March 25 this year the situation has profoundly affected the retail segment unlike Non-Banking Financial Companies, the retail segments have been long considered a safer bet for banks. When it comes to NBFCs this corporate segment has a wider distribution risk. Post lockdown the odds have changed significantly – the retail segment too started giving a lot of pain to the banks.
Now the banking sector is facing a very serious recovery challenge in retail loans. This recovery in retail loans will be expired and the blanket loan moratorium is also coming to an end on 31st August. The retail segment has been for long a safer bet for banks and NBFCs. Whereas the wholesale corporate segment brings in a lot of odds for the banking sector due to the lockdown currently in place. Naturally, lenders have every reason to fear a spike in defaults from the part of the retail segment. This is because of the possible fall in household income during this period. This gives rise to a near future uncertainty. Banking sources say that a large no. of retail borrowers are in financial troubles. And hence collections from home loans are sure to be affected in a major way.
Many borrowers would find it tough to repay large equated monthly installments (EMIs) if lockdowns are prolonged. As of 24th April, the home loans stand at Rs. 13.3 trillion. Home loans account for half of all retail loans. RBI had understood the trend of banks’ lending towards stress-free retail It also understood a slowdown in private consumption spending. RBI had warned the banks against lending solely to the stress-free retail sector. Private sector lender IDBI Bank is also seeing some stress in retail portfolios. This is the case of many other banks. One reliable bank source stated that the borrowers seem to conserve cash instead of repaying the loan. The true picture will come at the end of the moratorium. Many of the lenders remain on wait and watch mode against the situation. Industry watchers believe that the moratorium is good for corporate loans but not for retail borrowers.
