IT AIN'T OVER YET

The Indian banking system has been plagued with the twin devils of deteriorating asset quality and rise in non performing loans, a trend synonymous with high interest rates and slowdown in the economy. For most part the stress is being faced entirely on the corporate loan book of banks.

CORPORATE LOANS UNDER STRESS
Corporate debt restructuring cases hit record high in 2011-12. Indian banks sought to restructure $12 billion in corporate loans in the fiscal year that ended in March, up 156 percent from a year earlier, according to data from the Corporate Debt Restructuring Cell (CDR). The debt crisis in Indian banking continues, with loans over Rs4,400 crore referred for corporate debt restructuring until  May 2012. Mid-cap public sector banks are likely to see the bulk of this. Between April and May, PSBs have referred Rs11,700 crore for CDR. In April 2012, at least 18 cases, accounting for more than Rs7,300 crore were referred for CDR.

BANKS DE-'RISK'ING INTO RETAIL
Some of the large private sector and even PSU banks in an effort to de-tangle themselves from the corporate stress have been increasing exposure to the retail side. Take for instance ICICI Bank where retail forms 35% of the total loan book.  A string of defaults in its personal loan and credit card businesses severely damaged its asset quality, forcing a drastic change in its loan book which was three-fourth retail way back in 2008-09. But now the bank is betting big on the retail side again with a target to increase the retail book to 40% of total loan book.

RETAIL BORROWERS TO FEEL THE HEAT ?
The outlook for the economy has got gloomier after the shocking March quarter GDP growth of 5.3%. Industry watchers feel this could hurt demand for retail credit, and even lead to defaults on some of the existing loans. Already, demand for homes and automobiles have been slackening over the last few months.
As corporates in their effort to cut costs start freezing salary hikes and slash jobs it is just a matter of time before in individual borrower starts to feel the heat. As fuel, food, housing and living expenses go through the roof, to what extent would an individual borrower service his debt commitments (in an era of rising interest rates) only time will tell.

** Continuation of series on 'Why its still not the right time to buy bank stocks'