The resurgence of COVID is forcing small commercial banks to turn to inflation-reliant assets to avoid future asset quality shocks. These banks take advantage of large lenders who have already shifted their focus to less risky commercial assets. Minors, who are heavily affected by the epidemic, are urging their officials to approve new loans in areas affected by the epidemic, for example travelers and services.
What they find attractive are sectors that testify to the downturn in the economy such as essential services, gold loans and other commercial loans. The idea is to risk their portfolios at the beginning of the ongoing phase of COVID uncertainty. There are fears of a nationwide closure soon as COVID cases continue to rise daily across the country. Already, most countries have announced a lockout, which has affected businesses.
The RBI, on May 5, announced a second round of measures to help banks and depressed borrowers. This includes specialized financial support in COVID’s health sectors and the provision of another round of small business restructuring.
Gold, safe bet
When it comes to securities, gold lending is an important focus area for all banks. For example, Dhanlaxmi Bank, one of Kerala’s smaller private banks, grew its gold loan portfolio by 48.13 percent annually in the fourth quarter. Consequently, the development of gold loans increased by 5.6 percent. This growth is important.
Similarly, CSB Bank, one of the smaller private banks, said it had increased its gold loan share to 40 percent in the March quarter and wanted to increase it even further. “We see a lot of opportunities for gold borrowing. Currently, it offers 40 percent of the portfolio. Our gold loan portfolio now stands at Rs 6,131 crore and we have seen a 61 per cent growth in this portfolio year on year. We will continue to focus on this area, ”said CSB Bank MD & CEO, CVR Rajendran.
Banks love gold because it is a safe asset and backed by collateral. In addition, banks do not expect significant reductions in gold prices. According to RBI rules, banks can borrow up to 75 percent of the value of gold.
Similarly, another Kerala-based lender, Federal Bank, has also focused on commodities to reduce risk in the face of an epidemic. “Gold is a very good product and a great fence for the bank and the customer because it is secure,” said Federal Bank MD & CEO.
And customers are able to get a loan for this product, when in the case of other credit lines, banks were not free to do so for six to eight months. Naturally, the focus was on gold. We have done very well, ”said Srinivasan.
Currently, gold loans make up 11 percent and inching close to 12 percent.
Sales focus
While gold has always been a safe bet, the epidemic has forced banks to switch to wholesale loans from wholesale.
For example, the CSB has been jeopardizing its portfolio from major loans and loans to the service industry will now focus on secure lending such as emerging security. “Previously we were cleaning up the portfolio. Over time, we have evolved from other positions, including loans to gold traders and manufacturers, resorts and hotels, fields and more, ”said Rajendran.
“We have now identified the areas for which we will borrow which is a testament to the economic downturn. For example, we focus on gold loans. Food and food preparation is another area we love. There is a lot of focus on agricultural loans, ”said Rajendran.
The bank has decided to stay away from risky unsecured loans to avoid any future impacts on the quality of assets, Rajendran said. “We do not support unsafe entrepreneurs. We stay away from hotels and tourism, resorts and more, ”said Rajendran.
Similarly the Federal Bank has been focusing on long-term sales factors to reduce risks. “Any bank built with a granular liability franchise is a good bank. You see our credit profile. In 2012, we released the book in bulk. If you look at our book in 2013, we stopped depending on the amount of money invested. About 93-95 percent of the debt is currently on sale, ”said Srinivasan.
The second wave of COVID has had a major impact on the service sector, especially the small restaurants and resorts that have been hit hardest. With many countries now about to be in lock mode, small businesses are hit hard.
Epidemic Uncertainty
According to the SBI study report, with the second wave and the corresponding locks / boundaries, the economic downturn is becoming more pronounced. At least 20 regions are now closed. The rate of downtime is 3.7 times higher than the adjustment in April 2021. “Our business Activity Index, which has been declining since April, has dropped to a new level of 71.7, reached mid-Aug.20. , with the exception of weekly food rations and electricity consumption, ”says the report.
In addition, declining labor participation is a worrying sign that the disruption is rife in the labor market. Even the monthly earnings indicators, including GST debt on the way, car sales, fertilizer sales fell on April 21 compared to Mar’21, the report said.
Even the big banks are turning cautiously …
Not only small lenders, but large private banks are trying to lower their corporate book and focus more on the sales portfolio. In the case of ICICI Bank, the sales volume grew by 20 percent annually (YoY) and 7 percent respectively for the quarter ending March 31, 2021.
Sales loans accounted for 67 percent of total loan disbursements on March 31, 2021. In the case of Axis, sales loans grew by 10% YoY (annually) and 7% of QoQ (quarterly) and accounted for 54% the bank’s residual development. Home sales loans have grown by 11% YoY and 7% QoQ. The share of secured loans was 81 per cent with a home loan with 36 per cent of the sales letter.
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Merchant rates have hit new highs driven by higher donations from secured loan components. Consumer interest payments increased by 45 percent of YoY and 44 percent of QoQ, with secured securities such as home loans increasing by 73 percent YoY and 45 percent of QoQ, while LAP (anti-real estate loans) increased. -53 YoY and 51 percent QoQ.
In comparison, HDFC Bank has grown its sales volume slowly. Its domestic mortgage loans grew by 6.7 percent and domestic loans grew by 21.7%. The ratio of home loans according to the Basel 2 division between sales and sales was 47:53.
Banks have also expanded their plans to monitor any potential COVID panic. It is expected that with the development of vaccines, the epidemic will be managed this year with the highest number of cases sent in June-July, analysts said.
Moody’s Investors Service on May 11 reduced India’s forecast for the current financial year to 9.3 percent saying the second wave of COVID could contribute to economic recovery and increase the risk of long-term damage.
“India is facing a second wave of coronavirus infection that will slow its economic recovery in the near future and could have a strong impact on long-term growth,” Moody’s said.
