Nearly three in four bad loans added in the June quarter were loans to retail and business bank borrowers from private banks, indicating the level of stress caused by the second wave of the pandemic.

The six major private banks added nearly Rs 21,000 crore in bad debts in the first quarter, according to data collected by BloombergQuint. Bank loans to individuals and businesses, that is to say loans to individuals and small businesses, contribute nearly 73%.

India battled a deadlier second wave of Covid-19 in April-May. Reasons for the bad debt surge ranged from the inability of bankers to reach clients to collect dues to borrowers who delayed repayments to save money for emergency medical needs. Despite fears of a third wave, most private lenders expect asset quality to improve in the second half of the year.

“We faced significantly reduced collection workflows during the quarter due to staff restrictions in the field and both concerns – the health and safety issues of our staff as well as customers,” said Srinivasan Vaidyanathan, CFO of HDFC Bank Ltd. a conference call.

HDFC Bank did not disclose the breakdown between corporate and non-business slippages. The bank’s gross slippages (loans that deteriorated into non-performing) in April-June amounted to Rs 7,300 crore, with nearly Rs 900 crore coming from the agricultural portfolio.

The higher addition of bad debt during the quarter pushed its gross non-performing assets ratio up 15 basis points sequentially to 1.47%.

The bank has also seen tensions emerge in the commercial transportation sector, due to rising diesel prices, Jimmy Tata, head of credit and market risk, told analysts.

The bank’s pool of restructured assets represented 0.8% of the loan portfolio in June against 0.6% three months earlier. Almost 70% of these restructured loans came from the retail portfolio.

“They expect some of these NPAs to be resolved as collection efforts resume. HDFC Bank recorded 42 basis points of provisions in the quarter (5 basis points were additional contingent provisions),” Bernstein Research said in its July 18 report. “The bank said there may be additional restructuring cases in the next quarter, some of which may come from additional Q1 NPAs.”

Peer ICICI Bank Ltd. added Rs 7,231 crore in bad debt during the quarter. Of these, nearly Rs 6,400 crore came from retail and business bank borrowers, accounting for over 90% of new NPAs. The retail slips included Rs 961 crore from the Kisan credit card book and Rs 1,130 crore from the bank’s gold loan portfolio.

Growing tension in the retail loan portfolio has prompted the bank to become more cautious about provisioning against bad debts. Sandeep Batra, executive director of ICICI bank, told media on July 24 that the bank had made additional provisions worth Rs 1,200 crore against retail bad debts in the first quarter.

“On the one hand, the bank tightened its provisioning policy and, on the other hand, used part of the Covid buffer (now at 90 basis points from loans), controlling the cost of credit,” analysts said. Edelweiss Securities in a July 24 memo.

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