RK Bansal, MD and CEO, Edelweiss Asset Reconstruction Company (EARC), said retail bad loans of banks are likely to rise as some of the restructured loans may again turn into non-performing assets.
To reduce losses, banks are seen taking off their bad loans to asset reconstruction companies (ARCs) and this figure is on the rise.
According to ARC industry data, the balance amount of about Rs 2,000 crore was handed over to ARCs in FY 2010, while the figure rose to Rs 6,500 crore in FY 2011.
In the first 9 months of FY22, around ₹7,000 crore of principal book balances were handed over to ARCs. However, the situation in the retail loan segment was improving gradually over the last 6 months, except in January due to the third wave of COVID-19, said ARC industry officials.
“Two things happened during this period: collections have improved, and there has also been a restructuring of some retail loans by lenders,” Mr. Bansal said.
“However, some of these restructured loans may turn bad again which will be reflected in the March and June quarter figures,” he said.
In the first nine months of FY22, out of ₹7,000 crore bad loans sold to ARC, nearly 50% was acquired by EARC.
According to Trans Union-Cibil data [provided by EARC]As on September 30, 2021, secured mortgage (home loan, loan against property) had a GNPA ratio of 3.7%, while in case of secured, non-mortgage (auto and gold loan) the ratio was 9.6%.
For unsecured loans such as personal loans, education loans, credit card dues and consumer, MUDRA and MFI loans, the GNPA ratio stood at 8.47%.
In less than three years, EARC said it has seen an increase in its retail portfolio with the acquisition of principal amount of around Rs 7,000 crore from a large number of banks and NBFCs, who have helped ARC clear their NPAs both in cash as well as through was assigned from Security receipt route.
The retail portfolio includes holding a large number of distressed borrowers across geographies that have gone through the economic crisis triggered by the pandemic, it said.
“The country is facing a dire situation for an extended period of two years due to COVID-19, which has affected everyone including us,” Mr Bansal said.
“We have seen a drop in recovery numbers, rising distress with borrowers in the last few years, slowdown in the movement of people and litigation machinery,” he said.