Spike in auction of jewelry and cars most likely as collateral for loans

There could very much be a surge in auction of retail assets, such as jewelry and cars in the second quarter of the current fiscal, by lenders as collateral for loans. But this hasn’t been the case in the first quarter because of the COVID-19 pandemic. However, analysts believe recovery action is bound to pick up as the economy has started to open up.

G Ramesh, HDB Financial Services MD & CEO, said the HDFC Bank postponed quite a bit of normal collection activity. “This includes auctions that we might have done of collaterals that we normally can quickly do and collect. We have not done any asset sales or any restructuring in the last quarter.” Ramesh highlighted that there has been an improvement since the end of June and early July as customers like to come back on track.

Rakesh Jha, ICICI Bank chief finance officer, explained that in the jewel loan portfolio, if the loan goes overdue, the bank sends auction notices to customers. “In the current environment, we have not done that in April and May and in large part of June as well. Jha said the bank has now started doing that in July and has already started to see recoveries from these portfolios. Bajaj Finance, a private lender, told ToI that there was an increase in auto loan delinquencies due to defaults in its three-wheeler loan portfolio. Rajeev Jain, Bajaj Finance MD, said since the assets were repossessable, the lender might see better recoveries.

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However, Fitch Ratings shared an insight that the second wave of COVID-19 will continue to exert near-term pressure on non-banking finance companies (NBFCs). It said non-performing loans are likely to rise, as renewed activity restrictions have impaired borrower repayment capacity. Collection shortfalls are better than a year ago, but remain significant, i.e., 5-40% across various lending segments in April and May 2021.

Furthermore, as per RBI data, loans against jewelry by banks stood at Rs 62,221 crore as of June 18, 2021. This is an 80% increase over the previous year. Even in the first quarter, loans grew 2.5% despite the second wave. Auto loans had shown a jump of 11% year-on-year at Rs 2,38,214 crore. Bankers have shared that while the impact of the pandemic has been severe, there have not been many defaults in the corporate segment. The SME segment has been protected by the Emergency Credit Line Guarantee Scheme (ECLGS).