Mumbai: Many retail borrowers either missed out on the 31 December deadline to apply for the restructuring of loans or didn’t meet the bank’s criteria. Shalini Warrier, executive director and COO, Federal Bank, spoke to Mint about the options for such borrowers, trends in the banking sector, and loans segments that are doing well.
Q What has been your experience with loan restructuring?
The number was lower than we expected. It does indicate that things are looking up in the economy, and it is a good sign. All cases that came to banks by the deadline are logged into the system. Banks may take a little more time to complete the formalities.
While 31 December was the deadline for retail customers, the micro, small and medium enterprise customers still have time – until 31 March – to apply for restructuring. I believe whoever needed it would have come upfront. While the window is there and we could see some applications coming over the next few weeks, our general prognosis is that the cases are lower than what we had expected.
Q Can retail customers still ask for restructuring if they missed the 31 December deadline?
If they had come during the restructuring window, banks would not have treated them as non-performing assets (NPAs). If they come outside the window, there is still an opportunity to do restructuring. But the general rules will apply. If borrowers apply for restructuring now, banks will classify them as NPAs. In the special window that RBI provided, banks had to treat such cases as standard.
Customers facing financial problems and unable to repay loans have always been approaching banks for restructuring their loans. For such cases, there are specific rules that we follow.
Q Which categories of loans have witnessed a bounce back for the bank?
Gold loans are doing well, and they have seen tremendous growth quarter-on-quarter as well as year-on-year. Home loans, too, are back to January 2020 levels.
Car loans showed a good trajectory. But December month was better than January. That’s because in January, people wait for the new models to arrive. Sales are slow which affects the loan offtake.
loan against property has not shown momentum. But it’s a product where we tend to be cautious. Even personal loans are not back to pre-covid-19 levels yet. However, we are a small player in the segment with a portfolio of around ₹2,000 crore.
Q Do you think it was the pent up demand in housing and auto loans due to which banks are witnessing better offtake?
There will always be some element of pent-up demand. But that’s not causing the momentum in some loan categories. In auto loans, people are moving more towards ownership of vehicles and avoiding public transport. Smaller cars are, therefore, doing well.
Housing is doing well as employees are working from home. People are upgrading to bigger homes to be able to work from their residences comfortably.
There’s also a higher level of confidence in the market. The demand is expected to continue.
Q Are gold loans doing well because many continue to be under financial stress?
There are multiple reasons for it. It’s a countercyclical product. When the economy is not doing well, people take gold loans. It’s an easy way to raise money.
Besides, if you ignore the last few weeks, gold prices went up in the previous year. When this happens, people capitalise on prices. The third reason is the temporary relaxation in the loan-to-value ratio. Reserve Bank of India (RBI) had allowed banks to offer loans up to 90% of the gold value until 31 March 2021. Earlier, it was 75%.
Q Many fintechs are looking at launching neo banks. How would retail customers benefit from them?
Neo banks solve the problem of ease and access to financial services, particularly for [the] younger generation, those born in the internet age. Millennials are extremely comfortable doing everything on the phone. Whether it’s opening an account or transacting, they don’t want to see a branch at all. Millennials are a growing population in the country and will be attracted to neo banks. We do believe that neo banks will be successful. Fintechs in the neo banking space bring the expertise of being able to target specific customer segments. They understand UI/UX (user interface and uer experience) much better than we can ever understand. They know what appeals to millennial customers. We bring the banking expertise, understand regulations, and customers trust us with their money. We have partnered with some neo banks, and a couple of them are going to launch their services soon.