Safest mortgages, riskiest micro-loans amid Covid: report

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Mumbai: Home loans have proven to be the safest asset for lenders since the pandemic with relatively lower stress formations even after the second wave. Microfinance portfolios, on the other hand, were the hardest hit, with the second wave adding to the stress. Among other personal loans, credit cards were hit by the pandemic but the impact of the second wave was weaker.
According to a report from Nomura, the stress in the core mortgage portfolio for top players is in the range of 0.7% to 2.7%. The two companies that have a diverging trend with higher stress in the core mortgage portfolio during the first wave were LIC Housing Finance and PNB Housing. In the second wave, however, they did better with stressed loans in line with the industry.
The report did a stress study based not only on bad debts, but also those where the borrower asked for more time to repay.
Compared to mortgages, credit cards have seen a greater build-up of stress, especially during the first wave of the pandemic. “But, as the employee segment was largely spared, the stress formation was significantly lower than that of MFIs (microfinance institutions) and the impact of wave 2 is also significantly lower,” the Nomura report said.
Write-offs in the microfinance segments have been in the range of 3-6% and the increase in non-performing assets (NPA) has been 8-14% from pre-Covid levels. In addition, unrecognized stress (borrowers not respecting schedules) was high at 4 to 9%. The segment that is not yet out of the woods is microfinance. “MFIs clearly remained the most affected, given the customer segment and the insecure nature of the products, with 7-16% stress formation during wave 1 (FY21) and additional stress of 3-16% during wave 2 (Q1FY22) ”says the report.
Compared to credit cards, vehicles are secured loans. However, this segment has also faced challenges largely due to the exposure of lenders to the “earn and pay” segment or those who buy vehicles for hire such as bus operators and taxi aggregators. This segment was the most affected during containment. “Overall, the stress build-up was 5-26% (wave 1 + 2) with an increase in NPA from 1 to 17% and an unrecognized stress build-up from 3 to 21%,” said Nomura.


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