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Home loans have emerged as the safest asset for lenders in India since the onset of the Covid-19 pandemic with lower stress for the banks despite the second wave. Microfinance portfolios were impacted the most due to the Covid-19 second wave. Among the personal loan segment, the credit cards were adversely affected by the pandemic but the impact during the second wave was comparatively lower, according to the Japanese financial services company Nomura.
The overall stress in the core mortgage portfolio of the top lenders is in the range of 0.7% to 2.7%, according to the report. LIC Housing Finance and PNB Housing are two lenders that have a divergent trend with increased stress in their core mortgage books. They however performed well during the second wave and their stressed assets were in line with the industry, the report added.
Nomura did an assessment on financial stress based on cases of bad loans and the circumstances where borrowers sought additional time to repay the loans.
When compared to mortgages, credit cards witnessed higher stress build up in 2020 during the first wave of the Covid-19 pandemic, but with the salaried class somehow managing to meet their expenses, it was lower than that of MFIs (microfinance institutions) and it was even lower during the second wave, Nomura report observed.
Not out of the woods yet
As per Nomura, the write-offs in the microfinance segments have been in the range of 3-6%, while non-performing assets (NPAs) have gone up by 8-14% as compared to pre-Covid times. Apart from this, unrecognised stress arising from borrowers not meeting repayment schedules was high and stood at 4-9%. Nomura added that MFIs are clearly not out of the woods yet and saw stress formation to the tune of 7-16% in FY21 and additional 3-16% in Q1FY22.
According to Nomura, vehicle loans are more secure when compared to credit cards, but this segment faces challenges mainly due to the exposure to the earn-and-pay segment or those who buy vehicles for hires like the bus and cab operators and aggregators. This segment faced the nastiest impact during the lockdown. Overall stress build-up during the two waves stood between 5-26%, while unrecognised stress build-up was to the tune of 3-21%, Nomura added.