Will current inflation push up Retail delinquencies?
First, outbreak of Carona and now Russia- Ukraine war is creating havoc in Global markets. We are in VUCA (volatile, uncertain, complex, and ambiguous) world. Inflation is going through the roof, breaking 40-year-old record in country like U.S. and our neighbouring country Srilanka on brink of economic collapse. With many more economies esp. African countries staring at economic uncertainty. Indian economy has been holding strong so far.
Will the current retail portfolios also hold in this kind of situation?
To answer this, we need to step into shoes of an average Customer who has taken housing loan plus Credit Card/Personal Loan. Assuming post tax the family income is Rs 40,000/- per month. Before the inflation crisis, the family expenses on food, kids’ education and commute were approx. Rs 20,000/ and Housing loan instalment was approx. Rs 15,000/- leaving Rs 5,000/-for paying some EMI for small Personal loan and contingency/savings.
Pent up demand Post carona and Russia-Ukraine war has already pushed up inflation in India by 7-8%, which mean average household expenses up from 20,000/- to 21500/- at the same time Home loan EMI up from RS 15,000 earlier to Rs 16200-16,300 due to hardening of interest rates. Our customer who had Rs 5000/- let in his hand earlier will now have Rs 2200/-. With no respite on inflation, Crude oil prices not cooling down Rupee getting weaker against Dollar (1$=Rs 79) and continuous FII selling in stock market which may put more pressure on Dollar we have much more headwinds. Recently Govt imposed GST on few more items will further add to expenses of our customer. If things don’t improve quickly, we could be heading for uptick in delinquencies.?
Deputy CEO at National Finance, Muscat
3 周I wrote this article middle of 2022. The impact can be seen in Sept quarter of 2024 NPA reported by all the banks. The impact is visible in Rural portfolio and it is matter of time we will see personal loans showing stress.
Enterprising and Visionary Professional
2 年Yes sir . Rising delinquency. And GDP not in shape
Investment Banking | Fund Raise | Debt Capital Markets | Structured Credit
2 年Complex topic decoded in simple language. Thanks for sharing the post !
Managing Director at DocOnline
2 年A very simple and effective way to explain how millions of Indians are being squeezed. I enjoyed reading the analysis. Thank you Rakesh Makkar.
Connecting Dots
2 年Rakesh Makkar - isn’t it a paradox who has brought this on an Avg Customer by giving HL 25% of gross salary, Top-up, Loan Take over, supplementary/ add on Cr Card, PL -BNPL. All these things are making customers live much over their means. So they live and labor thru out working life and sell Assets in retired life to live a debt free life. How else are Share prices going high of NBFC / Banks, is not the management happy ?? You may be aware printing of money?? is also “one of the bigger reasons” for higher inflation (wrt US) Oil sanctions imposed on “other oil producing countries” by US, European countries is another reason for oil to be high. Wrt Srilanka it’s an out come of Global / Regional dominance between China and US.