Retail loan margins thin, won’t take risks higher than appetite: Sumit Bali, group executive & head – retail lending, Axis Bank

Sumit Bali, group executive & head – retail lending, Axis Bank

Retail lending has recovered well from the lows seen in April-May, but supply-side issues are hurting auto loan growth, Sumit Bali, group executive and head – retail lending, Axis Bank, tells Shritama Bose. The bank is avoiding aggressive risk-taking in home loans as margins are thin, he added. Excerpts:

How has the retail market recovered after the second Covid wave?
Clearly, we had a very good Q4 as an industry and specifically for us, if you see the numbers, we grew almost 6% quarter-on-quarter. So we went into Q1 of this financial year with that kind of momentum, but post-April 20, the bottom just fell off. In the next two months the deterioration was extremely sharp. There was fear, people were delaying everything, they were sitting on cash, preserving cash. Even we couldn’t go out to collect or meet customers. But since July, we are also seeing a sharper uptick. Last month, home sales were back to almost 95% of March levels. When we see some other parameters, especially on the cards side, those also point to a sharp recovery. When you dice the spends on the cards, a lot of the discretionary spends which had vanished — travel, eating out, dining, hotels, etc — we are seeing a fair bit of pick-up in that from the base level. But overall, spends have been record-high for the industry. This means customer confidence is coming back. There’s a sharp improvement on the delinquency metrics across the industry, when we see the bureau data.

What about the auto loans segment?
Interestingly, on the new cars side, demand is good, but the supply-side issues persist because of the chip shortage. That’s creating a different kind of problem for us. When we spoke to people in the manufacturing industry back in July, they had said production should be normal in October-November. It is not looking like that. There is some unexpected closure of a Bosch plant in Malaysia due to Covid, so that’s not fully back on steam. Given the long waiting periods, one sees the demand for cars also coming back. Used car prices are up. One of the unintended benefits of Covid is the demand for larger homes, so people can work from home and kids can study from home online. The second thing is the need for personal mobility. So when you put all this together, certainly we are getting into the festive season with a fair bit of tailwinds and very decent customer confidence. But for a third wave of Covid, things have started looking pretty good.

There’s a lot of competition in the home loan segment. You seem to have stayed away from rock-bottom pricing. How do you see that market?
As a bank, we have very clearly defined our risk appetite and in retail lending, margins are thin. It makes no sense to take risk higher than your appetite. When you lose money, you lose a fair bit of the principal. So we’ve not diluted our standards.

Rates can only rise from current levels. Is there risk building up in the system?
The RBI (Reserve Bank of India) has done a very intelligent thing by setting the LTV (loan-to-value) on home loans at 75%. There is a very strong association of the customer with their home. Post-Covid, people want to have a home. You are seeing inflation inch up, so everyone expects that rates will firm up over a period of time. But, in home loans you also have this facility of extending the tenor while keeping the EMI the same. If rates go up, it would mean that demand is good. Therefore, we don’t see great risk in there, given the margin and that we can keep the monthly outflow the same.

We see an increase in repossession notices for small borrowers’ properties. Is repossession actually on the rise?
So, for almost a year, there was no activity in terms of repossession or sale. Given the environment, courts were also holding on to giving permissions. Now, all that has started opening up. So there are permissions coming in, there is permission to sell out the inventory. In cases where customers have suffered large amounts of losses and can’t service (their loans), there are auctions happening. 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 have got bunched up together.

Do you continue to be cautious on unsecured loans, as you were up to the beginning of this year?
We’ve always said that from an 80:20 kind of a split, which is what we have as of June, we would be comfortable moving a bit more towards unsecured. That may be, say, 22-23% over a period of time. That remains our stated ambition and we are working towards that mix. The Covid second wave put a brake on that, but our goal remains that.