Sumit Bali, Group Director and Head of Personal Loans, Axis Bank
Retail lending has recovered well from April-May lows, but supply problems are hampering auto loan growth, Sumit Bali, group director and head of retail lending at Axis Bank, told Shritama Bose. The bank avoids taking aggressive risks on mortgage loans because margins are low, he added. Excerpts:
How did the retail market recover from the second wave of Covid?
Obviously, we have had a very good fourth quarter as an industry and, in particular, for us, if you look at the numbers, we have grown almost 6% quarter over quarter. So we entered the first quarter of this fiscal year with that kind of momentum, but after April 20 the bottom just fell. During the next two months, the deterioration was extremely strong. There was fear, people were delaying everything, they were sitting in cash, conserving cash. We couldn’t even go out to collect or meet clients. But since July, we have also seen a more marked increase. Last month, home sales returned to nearly 95% of March levels. When we look at other metrics, especially on the card side, these also indicate a clear recovery. When you cut back on card spending, much of the discretionary spending is gone – travel, dinner, dinner, hotels, etc. But overall, spending has been a record for the industry. This means that customer trust is returning. There is a noticeable improvement in crime metrics in the industry when we look at data from the office.
What about the auto loan segment?
Interestingly, on the new car side, demand is good, but supply problems persist due to chip shortages. This creates a different problem for us. When we spoke to people in the manufacturing industry in July, they said that production should be normal in October-November. It doesn’t look like that. There is an unexpected closure of a Bosch factory in Malaysia due to Covid, so it has not completely disappeared. Given the long wait times, demand for cars is also making a comeback. Used car prices are increasing. One of the unwanted benefits of Covid is the demand for larger homes, so that people can work from home and children can study from home online. The second is the need for personal mobility. So when you put it all together, we are definitely entering the holiday season with quite a bit of headwind and very good customer confidence. But for a third wave of Covid, things started to look pretty good.
There is a lot of competition in the mortgage loan segment. It seems to have stayed away from rock-bottom prices. How do you see this market?
As a bank, we have very clearly defined our appetite for risk and in personal credit the margins are slim. There is no point taking risks above your appetite. When you lose money, you lose a large amount of capital. So we have not watered down our standards.
Rates can only increase from current levels. Is there a risk of accumulation in the system?
The RBI (Reserve Bank of India) did a very smart thing to set the LTV (loan on the value) of home loans at 75%. There is a very strong association of the client with his home. After Covid, people want a place to call home. Inflation is on the rise, so everyone expects rates to stabilize over time. But, in home loans, you also have this option to extend the term without changing the EMI. If rates go up, that would mean there is good demand. So we don’t see a big risk there, given the margin and the fact that we can maintain the same monthly results.
We are seeing an increase in property repossession notices from small borrowers. Is Recovery Really Increasing?
Thus, for almost a year, there was no activity in terms of recovery or sale. In view of the environment, the courts also insisted on granting authorizations. Now all of this has started to open up. So there are authorizations coming in, there is an authorization to sell the inventory. In cases where clients have suffered significant losses and cannot meet (their loans), auctions are held. What you are seeing now, in a normal economic environment, you would have seen over a period of 15 months. It’s just that they got together.
Are you still wary of unsecured loans as you were until earlier this year?
We have always said that starting with a kind of 80:20 division, which we have in June, we would feel comfortable going a little more unprotected. It can be, say, 22-23% over a period of time. This remains our stated ambition and we are working in this direction. The second wave of Covid put an end to this, but our focus remains that.
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