A security guard uses a mobile phone outside a HDFC bank branch during a curfew in response to the outbreak of the Covid-19 pandemic on March 27, 2020, in Mumbai. Photo: AFP / NurPhoto

Indian bankers are now worrying about retail asset quality as the second wave of Covid-19 leads to financial stress among borrowers. India’s largest private sector lender HDFC Bank said it expects a higher incidence of asset quality stress in the retail segment as the pandemic continues to wreak havoc across the country.

During an investor call organized by Australian brokerage Macquarie, HDFC Bank chief executive and managing director Sashidhar Jagdishan said the bank will be cautious during these extraordinary times. For the first time in many years, bankers may not have a grip on what is going to happen, he remarked.

Jagdishan said the overall system was on a roll till April, and nobody anticipated the second wave, which is proving to be much more devastating than the first one. He said the current wave has gone deeper into the rural areas, impacting people who were insulated last year.

Most impacted, he predicted, will be the borrowers who had to avail themselves of cover under regulatory dispensations such as moratorium and restructuring after last year’s first wave. The bank has told its field staff to prioritize health and safety over business needs. Hence there will be a slowdown in collections, which will translate to marginally higher delinquencies in the near term, he added.

The HDFC Bank chief predicted that lenders across the board will feel the stress on the retail accounts and things will get back to normal in two quarters. The broader financial system’s experience is most likely to mirror what HDFC Bank witnesses, he added.

As for the asset quality of the corporate segment and the small and medium enterprises segment, Jagdishan expressed greater optimism. However, he felt that small businesses that were stressed out in Covid 1.0, and availed themselves of moratorium and restructuring of loans will continue to feel the pain.

Earlier, rating agency ICRA had flagged concern over the increase in the number of localized lockdowns to contain the spread of Covid-19 and said it would impact microfinance and unsecured loans to small businesses. The restrictions on movements will impact the collection efforts of shadow bankers.

The agency predicted that imposition of inter-state movement will impact commercial vehicle loans due to lower fleet utilization. However, it expects the housing loan portfolio to remain resilient.