India’s largest private sector lender HDFC Bank is closely tracking developments in the commercial vehicle (CV) space, where it has spotted the impact of high diesel prices. Outstanding loans for CVs and construction equipment (CE) stood at ₹27,100 crore as on June 30, making up a little over 5% of HDFC Bank’s domestic retail loans. Between April 1 and July 16, diesel prices have risen by ₹9.49 per litre in Mumbai to ₹97.45.
“There is one product line where I should point out a non-Covid-19 impact, because we keep talking about how covid-19 has impacted things. The commercial transportation sector has been hit by the diesel price hike and our previous experience also tells us that it usually takes a couple of quarters for people to manage to pass on these price hikes to their customers,” said Jimmy Tata, chief credit officer at HDFC Bank.
Tata told analysts on Saturday that the bank expects that in the current quarter (July-September), a fair amount of the cost would get passed on. “In the quarter after that, particularly with the help of the festive season, people would manage to bring things back on an even keel by passing on these increased costs. This is an aspect where we need to look at the developments in that particular product,” he said.
On the Covid-19 front, Tata said that an improvement in cheque bounce rates has shown that the inherent quality of the lender’s assets has not changed. The peak bounce rates in the second coronavirus wave were lower than the first, he said. “The bounce rate essentially has held up in the portfolio. If you look at the zero-DPD (days past due) bounce rate or people who are not in default on the day of presentation, it had actually reverted to pre-Covid levels, despite the second wave in April and May,” said Tata. He added that while the overall bounce rate remains higher than the pre-Covid-19 level, there has been a “pretty good recovery in June” and in July as well.
“So, the trends on reversal and the speed of exit are relatively encouraging for us. This is across products and essentially signals that the inherent quality of the portfolio has not changed and it is safety-oriented decisions that would have had whatever impact there was in the first two months,” he said.
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