Second wave: HDFC Bank concerned over retail asset quality in near-term

Mumbai: The country’s largest private sector lender HDFC Bank expects the otherwise resilient retail segment to report a higher incidence of asset quality stress because of the second wave of Covid-19 infections.

Borrowers who had to avail cover under regulatory dispensations like moratorium and restructuring after the first wave will be the highest impacted, its chief executive and managing director Sashidhar Jagdishan said on an investor call.

Terming the near-term expectations as “tepid” and making it clear that the bank will be “cautious” in these extraordinary times, Jagdishan said, “First time in so many years, we may not have any grip on what is going to happen”.

“We are reasonably sanguine on the asset quality on the corporate and the SME (small and medium enterprises) side, but from the retail or the segment of people who have or were stressed out in Covid 1.0, who had taken moratorium and restructuring, I think they will continue to feel the kind of pain and stress. So, probably, these are the ones which will show a little bit of stress this time around,” he said, on the call organised by Australian brokerage Macquarie.

Jagdishan said the bank has told the field staff to prioritise health and safety over business needs, and hence, there will be a slowdown in collections, which will translate to some amount of higher delinquencies in the near term.

“But I don’t want to say it will be dramatically high. It will be high, I don’t think it will be a loss. They should cover up in coming quarters,” he said, expecting things to get back to normal in two quarters.

He said the overall system was on a roll till April and one could not anticipate the surge that will impact and take a toll higher than the first wave.

The broader financial system’s experience is also most likely to mirror what HDFC Bank witnesses, he said, adding that stress on the retail accounts will be higher across the system.

The ongoing second wave has gone deeper into the rural areas, impacting people who were otherwise insulated, and it has consumed more lives than the first as well, he noted.

Meanwhile, Jagdishan explained that the purpose of introducing an organisational change was to get those who are second in the hierarchy in the management line to the fore by giving them leadership responsibilities.

The small business lending will get a renewed focus as part of the efforts to make it future-ready, he noted.

Admitting that the strictures passed by the RBI like completely banning new credit card issuances because of the shortcomings on the technology front are a “blot” on the reputation of the bank, Jagdishan said it has taken the right lessons from the regulatory interventions.

“The fundamental part where we could probably have done better is resiliency and how do you recover faster when an outage happens,” he added.

HDFC Bank scrip closed 2.02% down at Rs 1,478.80 apiece on the BSE.