We had recently organised a conference call with Mr. Satish Pillai, Chief Operating Officer, CIBIL, to gain insights into emerging trends on asset quality, to understand the scope of credit data available, the process of collecting & recording the same, and finally the impact of the bureau’s credit monitoring on the structural behaviour of asset quality. We understand that retail asset quality continues to clock historical low delinquency levels, barring a slight uptick in the auto segment. Stress in auto segment (along with commercial vehicles) is however restricted to some products for a certain set of banks only and is not a widespread phenomenon. Moderation in trends is however visible on SME portfolios given the tough environment.
Along with CIBIL data sounding caution on commercial vehicles asset quality, we believe: (i) pressure on freight rates on key routes; (ii) excess capacity creation with falling cargo availability; and (iii) operators’ cash flows taking a hit as operating costs continue to mount, make this segment vulnerable. We remain watchful of banks and NBFCs with sizeable exposure to commercial vehicles.
Asset quality: Barring auto, retail quality intact; stress in SME
The asset quality trend has been healthy over the past 18-24 months in vintage portfolios across all retail products, other than auto loans (both 30dpd and 90dpd) and delinquencies are at historical lows. Within auto loans, some segments for a few banks are seeing higher than normal delinquencies (15-20% higher than last year), but across-the-board decline is not the trend. Further, various banks are performing differently in terms of recovery as well as some are able to recover pre write off. Commercial vehicles, however, are clearly witnessing stress. The other segment of advances viz., SME and private proprietorships have higher NPA rates for few banks. On large corporates while data is available, the focus is on SMEs. As per CIBIL, banks’ growth over the next 18 months will also have a bearing on asset quality.
Retail asset quality drawing strength from improved processes
Various factors are at play underscoring the superior performance of retail assets. Prominent amongst them are: (1) sourcing strategy shifting from self employed to salaried customers; (2) unsecured loans being stopped by many banks post the previous downturn; (3) mix of credit off take has also changed and now just 30-35% enquiries are for unsecured credit; (4) credit processes have improved over the years where subjective underwriting is being replaced with information-based underwriting; (5) banks along with their internal analysis (large banks have 3-4mn accounts data) are using the bureau score for decision making; and (6) portfolio management is gaining importance at banks, more so in private and multinational banks to track if their customers have increased their leverage with the other banks.
Regards,
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