Consumer, MSME credit warrants higher monitoring for slippages: RBI FSR

Showing up the effects of the second wave of Covid, the consumer credit aka retail loans to MSMEs could pose higher slippage risk for lenders in the coming quarters.

The financial stability report by Reserve Bank of India said going forward, close monitoring on asset quality of MSME retail portfolios of banks is warranted.

Consumer credit deteriorated after the loan moratorium programme came to an end in September 2020. Customer risk distribution of the credit active population underwent a marginal shift towards the high-risk segment in January 2021 relative to January 2020.

In terms of credit risk migration, even low risk tiers are showing downward momentum. Consumer credit portfolios of private banks finance firms including housing finance companies are seeing incipient signs of stress, FSR said.

The second wave has sharply affected credit demand, with a steep fall in inquiries across product categories in April 2021. The overall demfor consumer credit, as reflected in inquiry volumes, had stabilised in (Q4FY21) after a sharp rebound during the festive season in (Q3FY21). The first Covid wave receded in the third quarter.

Referring to exposure to micro, small medium size units (MSMEs), the report pointed out stressed entities as group have the elevated level of debt. The implications of business disruptions following the resurgence of the pandemic could be significant.

Since 2019, weakness in the MSME portfolio of banks finance companies has drawn regulatory attention. The Reserve Bank permitted restructuring of temporarily impaired MSME loans (of size upto ’25 crore) under three schemes.

While Public sector Banks (PSBs) have actively resorted to restructuring under all the schemes, participation by PVBs was significant only in the COVID-19 restructuring scheme offered in August 2020. Despite the restructuring, however, stress in the MSME portfolio of PSBs remains high, the report said.

The government guaranteed credit scheme to eligible categories boosted the disbursements. The net credit flow to stressed MSMEs during March 2020-February 2021 rose to Rs 50,535 crore with the shares of PSBs private banks at 54 per cent 35 per cent, respectively. The transition from low medium risk MSME borrowers, year-on-year basis, to the high-risk segment was noteworthy.

FSR said the banking sector will be required to specifically guard against adverse selection bias while being alive to the credit demfrom productive viable sectors.

In the most optimistic scenario, the impact of the second wave should be contained within the first quarter of the year. The frictional inflation pressures work their way out over the first half of the year, it added.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information commentary on developments that are of interest to you have wider political economic implications for the country the world. Your encouragement constant feedback on how to improve our offering have only made our resolve commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed updated with credible news, authoritative views incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better more relevant content. We believe in free, fair credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism subscribe to Business Standard.

Digital Editor

Source link