10 Big Questions For 2021

The Covid-19 crisis wreaked havoc on the economy. Will the New Year herald a much-needed recovery?

- Salil Panchal

1. Will retail loans go sour?

Quite likely, yes. And the unpleasant numbers will show up in January and April 2021, when banks start to disclose asset quality through their quarterly earnings data. Even as much confusion prevails on whether banks will be granted more time to restructure loans—considering that the Supreme Court is hearing matters relating to waiver of interest—most have resorted to upfront provisioning, fearing deteriorating asset quality in the months gone by. But restructuring the loans will not solve the problems for banks, it will only delay them.

Rather than large corporate loans, the pain point for banks is likely to come from unsecured loans, particularly personal loans, education loans, credit card debt or a small vehicle loan. Individuals who have seen job losses or salary cuts or small businesses where revenues have come to a grind have struggled to repay loans.

Between April and October 2020, the bounce rate on auto-debit transactions has been high at an average of 40.4 percent in volume terms and 33.5 percent in value terms, compared to year-earlier levels of 29 percent and 23 percent respectively, for the same period. This was on transactions through the National Automated Clearing House (NACH).

Most bankers fear the worst for the retail loans segment. “The meter is running on the retail side. For the industry, overall slippages are bound to increase,” says Amitabh Chaudhry, managing director and CEO of Axis Bank. These non-performing assets (NPAs) will be higher than what the financial system has seen in the recent six to seven years.