Commercial vehicle, micro loans remain pain points for lenders in Q2
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IndusInd Bank, a major player in both the categories, said recoveries in the vehicle finance segment were strong in Q2. The restructured book in the segment increased over 28% sequentially to Rs 3,969 crore at the end of the quarter.
Stress in the commercial vehicle (CV) loans and microfinance segments remained high during the July-September quarter, even as most lenders reported an improvement in the overall asset quality. While the rise in prices of diesel hit repayments by CV owners, collections in the micro loans segment were affected by accessibility issues.
IndusInd Bank, a major player in both the categories, said recoveries in the vehicle finance segment were strong in Q2. The restructured book in the segment increased over 28% sequentially to Rs 3,969 crore at the end of the quarter.
The bank’s management told analysts that a 35% increase in diesel prices affected the profitability of vehicle operators. Moreover, freight rates took a while to catch up and led to demand-supply issues. IndusInd expects the sentiment to improve in the vehicle finance business once fuel prices fall below Rs 100 per litre.
Other financiers said while vehicle operators were paying, they were unable to clear past instalments that had fallen due. Ravindra Kundu, executive director, Cholamandalam Investment and Finance Company, told investors on a post-results call that the overall trend in recoveries is positive. “The customers are able to pay one EMI, but they are not able to pay two or three EMI to roll back their accounts from Stage-3 to Stage-2 and Stage-2 to Stage-1…”
As for microfinance, reaching customers for collections continued to be a challenge in a few states, such as West Bengal and Kerala. Sumant Kathpalia, MD & CEO, IndusInd Bank, said there may be additional restructuring to the extent of 6-8% of the book and the bank has decided to take a hit and provide for it. There may also be an additional restructuring worth Rs 200-300 crore.
“Having said that, I must say we are carrying enough provisions to take care of that,” Kathpalia said. “I do expect that in October-December, where we are seeing buoyancy all over, I believe a lot of these issues may be behind us.”
Bandhan Bank posted a Rs 3,000-crore loss in Q2 as it made provisions worth Rs 5,500 crore, including accelerated provisions on its existing pile of NPAs. The overall micro stress pool – NPAs, restructured loans, special mention accounts (SMA)-1 and 2 – stood at Rs 19,500 crore, or 24% of loans. The bank expects recoveries worth Rs 6,000 crore till March-end, recoveries from credit guarantees worth Rs 3,000 crore and an unspecified amount from the Assam loan relief scheme.
RBL Bank said catching up on older EMI repayments is a tricky task for microfinance customers as well. Harjeet Toor, head – retail, inclusion and rural business, RBL Bank, said in a post-results call with analysts that gross slippages in micro banking, while lower on a sequential basis in Q2, were still higher than normal. “Collection efficiencies are improving and we are seeing these customers stabilise in the existing delinquency buckets.”
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