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<div type="image" title="The RBI has cracked the regulatory whip on NBFCs and banks, who&amp;#39;ve been pushing microfinance and unsecured loans aggressively to grow their loan books." agency="ANI" msid="114778648" hostid="261" caption="&amp;lt;p&amp;gt;The RBI has cracked the regulatory whip on NBFCs and banks, who&amp;#39;ve been pushing microfinance and unsecured loans aggressively to grow their loan books.&amp;lt;/p&amp;gt;"></div> Imagine this. You have a younger sibling you’re mighty envious of. And why not? Unlike you, they seem to enjoy all the freedom and money in the world. They party like there’s no tomorrow, and here you are, stuck in a boring, ultra-disciplined but responsible routine that feels completely devoid of any independence, and mostly, funds. But of late, things are changing. This sibling is in massive trouble and just cannot escape the parent’s wrath anymore. Long story short, the party is over, and it is time to go back home. The rising defaults on this sibling’s part have now begun pulling the entire house down, thereby attracting the regulator’s ire. <h2>The Wild West of <keyword id="113684" type="General" weightage="20" keywordseo="microfinance" source="Orion">microfinance</keyword> and unsecured loans</h2>It's hard to ignore the issues with microfinance and unsecured loans in India. Many saw them as a small gamble and ignored the rising defaults much like the younger siblings’ tantrums, and now they find themselves in hot waters. The skyrocketing instances of non-payments aren't a micro-issue anymore and are threatening the stability of the entire banking system. In the quarter ended September 30, 2024, 5 of India’s 8 largest private sector <keyword id="19934118" type="General" weightage="20" keywordseo="banks" source="keywords">banks</keyword> reported a steep rise in their bad loan book, mostly thanks to microfinance loans. Some banks, in a bid to strengthen their fortress against these <keyword id="142154" type="General" weightage="100" keywordseo="bad-loans" source="Orion">bad loans</keyword>, have significantly upped their provisions. For instance, IndusInd Bank set aside Rs 525 crore during July and September 2024 to battle the menace of defaults on microfinance loans, which make up about 9% of its total loan book. See, banks rely heavily on their interest income, which they earn from advancing loans. Any loan where the borrower has not paid interest to the bank or defaulted for 90 days or more becomes bad, i.e. an NPA, or non-performing asset for the bank. And who likes things going bad? Simply put, there has been a steep rise in three areas, much to the dislike of banks and MFIs (micro-finance institutions). But hey, it's mostly their doing! <ol><li>GNPA ratio (gross net performing assets): The quantum of non-performing assets a bank has in proportion to its total assets.</li><li>Provision: The amount banks set aside to take care of such NPAs.</li><li>Slippage ratio: The rate at which good girls go bad, or the speed at which good loans turn into NPAs</li></ol>But how are these plaguing the Indian banking sector? And what does the road ahead look like? We decode it for you. <h2> Microfinance: A not-so-micro-menace</h2>Microfinance loans were initially brought forth for low-income households and individuals i.e. for those who might not generally have access to traditional ways of credit, like bank loans and more. They don’t require collateral or an asset to be pledged in lieu of the loan, making it a tad bit easier for borrowers. As of June 2024, the amount of outstanding loans in the microfinance industry stood at a staggering Rs 4,20,256 crore. Of this, NBFC-MFIs accounted for 40% and banks made for 33% of these. In 2022, RBI, in a bid to inspire some competition in this space, did something radical-they did away with the ceiling on how much interest MFIs could charge their customers. Previously, MFIs could add up to 12% to their cost of acquiring funds to determine the final interest rate chargeable to the consumer. So, assuming that Bank A incurs a 5% cost to acquire funds for further loaning, A could charge up to 17% interest from the end consumer. So, interest rates were in the hands of MFIs, and boy, did they have a gala time with it. Instead of spurring some healthy competition, as RBI expected, MFIs and banks went rogue and all guns blazing, competing for the title of “Who will charge the highest interest?” Recently, RBI banned 4 microfinance institutions (MFIs), namely Asirvad Micro Finance Limited, Arohan Financial Services Limited, DMI Finance Private Limited, and <keyword id="20117932" type="General" weightage="20" keywordseo="navi-finserv" source="keywords">Navi Finserv</keyword> from disbursing loans effective October 21, 2024. Why? Because they were charging 14% extra interest over their original cost of funds. To maintain their loan books (and pockets), banks and NBFCs resorted to shady practices like netting off loans, which RBI has now advised MFIs against. Here, lenders allow borrowers to settle a previous outstanding loan by issuing them a new loan! As crazy as it sounds, it helped banks to report less of their total assets as NPAs, since the new credit would cover pending instalments of the borrower’s previous loan. Then there was the issue of borrowers overleveraging, i.e. taking multiple loans using different IDs from various lenders and then failing to honour any of them. The consequence? Banks and NBFCs end up with massive NPAs. Data from credit bureaus suggests that over the last quarter, there was a 17.2% rise in the number of borrowers who had 5 or more active loans at the same time. <h2>Growth &gt; Caution</h2>It's an age-old tale unfolding yet again in India’s banking sector- Icarus flew too close to the sun and eventually, fell to its death. Between April and June 2024, NBFCs microfinance portfolio jumped by 2.7%. If you see this in terms of loan sources, microfinance loans issued by banks grew by 11.2% in Q1FY25. But the same portfolio in NBFCs swelled by almost double-23.9%. While most of these loans had an average ticket size between Rs 30,000-50,000, there was a sharp spike in the number of loans that had a ticket size of Rs 80,000 or more. Data suggests that as of March 2024, more than 12% of all microfinance borrowers had over 4 or more active loans. In dating parlance, this is a classic case of borrowers going polyamorous, minus the honesty and transparency. Not the best of situations, you'd agree! <h2>Will banks and NBFCs stand up to this stress?</h2>If their results for Q2FY25 are to be believed, NBFCs are not handling the pressure all that well. Or even slightly well. Only a few banks like Bank of Baroda (BoB), ICICI, and Indian Bank were up for the battle, even witnessing a decline in their loan delinquencies. Some others, like IndusInd Bank, saw their stock dip by a massive 16.2% over the last 5 days. Its slippages in the previous quarter burgeoned from Rs 15.3 billion in Q1FY25 to Rs 17.9 billion in Q2. As a result, the bank pushed a staggeringly high amount of money to create an NPA cushion for itself. While its management has highlighted its preference for secured lending, that was hardly reflected in its actions during the quarter, where growth in unsecured personal loans remained exceptionally high at over 7% on a QoQ basis. Turns out, only 44% of customers in IndusInd Banks’ microfinance loan portfolio were exclusive to it. The rest 47% were, you guessed it right-polyamorous! 27% had borrowed from another lender as well, apart from IndusInd Bank, while 20% were those who had outstanding loans with two other lenders, apart from IndusInd Bank. IndusInd Bank’s credit card segment did not miss the NPA bus and accounted for 7-8% of its GNPAs. Canara Bank’s total slippages during the previous quarter jumped to Rs 11.1 billion, up by 24.7% QoQ, and making up for 3.6% of its total loans. As for Bandhan Bank, its gross NPA for Q2FY25 inched up on a QoQ basis, up from 4.23% in Q1, to 4.68% in the second quarter. IDFC Bank’s heavy provisioning for its NPAs marred its profits significantly, causing its PAT (profit after tax) to dip by 73% on a YoY basis. Data from ICRA Analytics suggest that the AUM (asset under management) growth in microfinance loans and unsecured (personal and business) loans by the NBFCs will moderate to 10-12% and 19-21%, respectively, in FY2025 compared to 30% and 38%, in FY2024. Says A M Karthik, Senior Vice President &amp; Co-Group Head, Financial Sector Ratings, ICRA, “As bank funds constitute a larger share in the overall funding of NBFCs, a slower credit flow from banks to the NBFCs will compress their AUM growth. The NBFCs in unsecured and digital lending businesses shall face a higher squeeze in funding compared to others, and the unsecured lending space will continue to be a source of stress in the near term.” There has been uninhibited growth in <keyword id="6051027" type="General" weightage="20" keywordseo="Unsecured-loan" source="Orion">unsecured loan</keyword>s, apart from just the microfinance segment. For instance, Axis Bank’s gross slippages jumped by Rs 4,443 crore, largely thanks to its unsecured business. The same is the case with Yes Bank, which saw 35–40% of its retail slippages emerging from the unsecured loan portfolio. <keyword id="6376194" type="General" weightage="20" keywordseo="kotak-mahindra" source="Orion">Kotak Mahindra</keyword> Bank was also quick to follow Yes Bank’s suit, with around 35%-40% of its slippages coming from credit cards. <h2>How is the road ahead?</h2>While RBI has just cracked its whip and served a warning at the moment, experts at Morgan Stanley believe that more changes (read regulatory lashes) are underway. Moreover, with both festive and wedding seasons underway in our country, unsecured lending might pick up momentum, much to the disdain of the calibrated approach banks have been taking towards it so far. But if the situation doesn't improve, RBI will not waste any time in becoming the typical tyrannical <keyword id="19897820" type="General" weightage="20" keywordseo="bollywood" source="keywords">Bollywood</keyword> headmaster who runs his dominion with an iron fist. However, that's a story for another day. Do you have a topic in mind you'd want a simpler explanation for, or insights or personal experience to share on personal finance and more? Contact us at businessinsider@timesinternet.in.

Simply Put: Is the lending party over? The dangerous tango of Indian banks with microfinance and unsecured loans

The Indian <keyword id="22196321" type="General" weightage="20" keywordseo="credit-card-industry" source="keywords">credit card industry</keyword> is struggling to grow, as new issues slow down on a year-on-year (YoY) basis. Not only has the growth i.e. issuance of new credit cards slowed down, but lenders are also becoming increasingly cautious of the asset qualities, a recent report by Nomura showed. From 19% in July 2024, the growth in the <keyword id="6368202" type="General" weightage="20" keywordseo="credit-card" source="Orion">credit card</keyword> spendings came down to 13% in August 2024. The year-to-date (YTD) growth has also significantly declined in FY25, currently standing at 17%, markedly down from 28% in FY24. For the fifth consecutive month, the number of new credit cards added to the system remained well below the 1-million, or 10 lakh mark. Around 9.2 lakh credit cards were added during the month, a slight uptick from the 7.55 lakh cards that came into the system In July 2024. However, there is growth in this space nevertheless, with about 10.55 crore active credit cards at present, marking a 15.6% YoY increase. Even the annualised spend per card, or the average amount spent via an annual card during an year grew 1% YoY to Rs 1.87 lakh. But this was far less than the 7% growth annual spends via one credit card saw in FY24. Meanwhile, what continues to burgeon consistently is the outstanding amount on these credit cards, which ballooned to Rs 2.7 lakh crore in June 2024, up from Rs 2.6 lakh crore in March 2024, and around Rs 2 lakh crore in the year ago period. To put this in perspective, pre-pandemic, the total outstanding amount stood at Rs 87,686 crore, which marks a 24% CAGR in this amount, in just a span of 5 years. <h2>Large drops, slowdown to sustain</h2>Even the monthly expenditure per card dropped 2% YoY to Rs 16,000 in August, 2024. Subsequently, the transaction volume via credit cards also dipped to 1.6% in August, along with the total amount of <keyword id="21084888" type="General" weightage="100" keywordseo="credit-card-spending" source="keywords">credit card spending</keyword>, which fell to Rs 1.69 lakh crore in August, from Rs 1.73 lakh crore in July. Also, there has been a hefty cutdown in provisions made for credit card reward points, which reflects in the quantum of credit card benefits that have been mowed out by companies of late, making credit cards far less lucrative than before. <h2>HDFC takes lead </h2>During August 2024, <keyword id="19895995" type="General" weightage="20" keywordseo="HDFC-Bank" source="keywords" meta.keywordsubtype="org" meta.entityname="HDFC Bank" meta.hostid="261" meta.entityid="HDFC Bank">HDFC bank</keyword> added a total of 2.41 lakh credit cards, taking its total tally of active credit cards to 2.19 crore. <keyword id="19900482" type="General" weightage="20" keywordseo="ICICI-Bank" source="keywords" meta.keywordsubtype="org" meta.entityname="ICICI Bank" meta.hostid="261" meta.entityid="ICICI Bank">ICICI Bank</keyword> came a second distant, adding 1.45 lakh credit cards during the month, which means that the second-largest credit card issuer now holds over 1.75 crore active credit cards. Axis Bank and SBI Cards also added 1.27 lakh and 1.1 lakh cards, respectively to their repertoire during the month, while the growth numbers at Kotak Mahindra Bank remained largely flat, stagnating the bank's total card tally at 54.13 lakh. This was due to the ongoing ban on the bank due to its weak IT infrastructural issues imposed by RBI in April 2024. If anything, the bank's number of credit cards declined by 61,191 during the month. Even as the festive season approaches, experts think that it is unlikely to make a major dent in credit card spendings, which are expected to see a further slowdown in the quarters to come.

Credit card growth experiencing a slowdown, as borrowers struggle to pay back loans

<keyword id="2240511" type="General" weightage="80" keywordseo="bandhan-bank" source="Orion">Bandhan Bank</keyword> on Wednesday reported over three- fold jump in net profit at Rs 721 crore for the second quarter ended September 30, 2023. The Kolkata-headquartered private sector lender had posted a profit of Rs 209.30 crore for the same quarter a year ago. Total income during July-September this fiscal rose to Rs 5,032 crore as against Rs 4,250 crore in the same period of 2022-23, Bandhan Bank said in a regulatory filing. Net interest income grew to Rs 2,443 crore in Q2 FY24 from Rs 2,193 crore in Q2 FY23. On the <keyword id="6382596" type="General" weightage="20" keywordseo="asset-quality" source="Orion">asset quality</keyword> front, the lender reported deterioration as gross non-performing assets (NPAs or <keyword id="142154" type="General" weightage="20" keywordseo="bad-loans" source="Orion">bad loans</keyword>) rose to 7.32% of gross advances at end-September 2023 from 7.19% by the end of second quarter of 2022-23. Likewise, net NPAs or bad loans also increased to 2.32%, from 1.86%. However, provision (other than tax) &amp; contingencies declined to Rs 636 crore from Rs 1,280 crore in the same quarter a year ago. Net interest margin of the bank improved to 7.2% in Q2 FY24 from 7% in Q2 FY23.

Bandhan Bank Q2 profit jumps over 3-fold to Rs 721 crore

<keyword id="8009942" type="General" weightage="20" keywordseo="walmart-owned-flipkart" source="Orion">Walmart-owned Flipkart</keyword> on Friday announced that it will be distributing <keyword id="6355975" type="General" weightage="20" keywordseo="axis-bank" source="Orion">Axis Bank</keyword>'s <keyword id="35520" type="General" weightage="20" keywordseo="personal-loans" source="Orion">personal loans</keyword> on the e-commerce platform. The platform, which has 450 million customers, will be distributing loans of up to ₹5 lakh which can be repaid in up to three years, it said in a statement. The announcement comes amid reports of <keyword id="30067" type="General" weightage="20" keywordseo="rbi" source="Orion">RBI</keyword>'s concerns on the high growth in the more riskier unsecured lending segment like personal loans and credit cards. "As Indian consumers continue to evolve, an increasing aspiration exists to enhance their lifestyles," the Flipkart statement said. The facility in tie-up with the third largest private sector lender will empower customers with increased purchasing power, it added. Flipkart's senior vice president for fintech and payments group, Dheeraj Aneja said the e-commerce platform already offers financing avenues like Buy Now Pay Later (BNPL), Equated Monthly Installments (EMI), and Co-branded Credit Cards to support buyers. "Our focus is to enable credit and enhance purchasing power by granting access to liquidity precisely when needed. These financial solutions cater to the evolving demands of consumers, offering greater flexibility and convenience throughout their purchasing journeys," Aneja added. Axis Bank's president and head of digital business and transformation, Sameer Shetty, said the bank will be able to offer lending to a wider spectrum of customers through the partnership. Customers will be able to get loan approvals in 30 seconds under the partnership, the statement said.

Flipkart to distribute Axis Bank personal loans of up to ₹5 lakh

Mumbai, Three out of five consumers surveyed in India believe it is normal for people to exaggerate income on <keyword id="20243269" type="General" weightage="20" keywordseo="loan-applications" source="keywords">loan applications</keyword>, according to a report on people's attitudes toward first-party <keyword id="20490528" type="General" weightage="20" keywordseo="financial-fraud" source="keywords">financial fraud</keyword>. The survey by global analytics software company FICO stated that more than a quarter (27 per cent) of Indians believe it is normal for people to deliberately misrepresent their income on mortgage applications. "Three in five consumers (63 per cent) think it is OK or normal for people to exaggerate their income on loan applications, significantly more than the global average of 39 per cent," the survey said. More than half (54 per cent) believe it is normal to falsify insurance claims, the global survey which examined 1,000 people in India said. Many Indians consider it fine to exaggerate income on personal loan applications, further complicating financial integrity. Just one third (33 per cent) of consumers believe it is never acceptable to exaggerate income on a personal loan application, while another third (35 per cent) finds it acceptable under specific conditions. "With over 60 per cent of Indian consumers viewing income falsification as acceptable or justified, banks face a very real problem of 'liar loans' that could skew risk assessment and increase bad loan rates," said Aashish Sharma, APAC segment leader for risk lifecycle and decision management at FICO. As many 1,000 Indian adults were surveyed, along with approximately 12,000 other consumers in Canada, U.S., Brazil, Colombia, Mexico, The Philippines, Indonesia, Malaysia, Singapore, Thailand, U.K. and Spain. Globally, attitudes are notably different, with the survey revealing the majority of consumers (56 per cent) firmly reject the idea of exaggerating income on loan applications, viewing it as never acceptable. Just, one in four (24 per cent) consider it permissible in certain circumstances, and only one in seven (15 per cent) view it as a normal practice, the report said. "Many consumers may not see this as harmful behaviour, but it's important to understand that when applying for financial products, applicants typically certify that the information they provide is accurate," Sharma said. SEE ALSO:<a href="https://www.businessinsider.in/stock-market/news/arkade-developers-ipo-allotment-how-to-check-allotment-ipo-gmp-listing-date-and-more/articleshow/113493854.cms" target="_blank"></a> <a href="https://www.businessinsider.in/stock-market/news/arkade-developers-ipo-allotment-how-to-check-allotment-ipo-gmp-listing-date-and-more/articleshow/113493854.cms" target="_blank">Arkade Developers IPO allotment – Check allotment status, GMP, listing date and more</a><a href="https://www.businessinsider.in/stock-market/news/western-carriers-ipo-allotment-how-to-check-allotment-ipo-gmp-listing-date-and-more/articleshow/113511375.cms" target="_blank"></a> <a href="https://www.businessinsider.in/stock-market/news/western-carriers-ipo-allotment-how-to-check-allotment-ipo-gmp-listing-date-and-more/articleshow/113511375.cms" target="_blank">Western Carriers IPO allotment – How to check allotment, IPO GMP, listing date and more</a><a href="https://www.businessinsider.in/tech/mobile/news/iphone-16-series-allows-users-to-wirelessly-restore-the-firmware-using-an-iphone-or-ipad/articleshow/113455048.cms" target="_blank"></a> <a href="https://www.businessinsider.in/tech/mobile/news/iphone-16-series-allows-users-to-wirelessly-restore-the-firmware-using-an-iphone-or-ipad/articleshow/113455048.cms" target="_blank">iPhone 16 series allows users to wirelessly restore the firmware using an iPhone or iPad</a>

Three out of 5 consumers think it's normal to exaggerate income on loan applications: Survey

<ul class="summary-list"><li>American consumers and businesses are having a hard time paying off credit card, auto, and commercial real estate debt.</li><li>US banks have increased their reserves in part to prepare for potential loan losses.</li></ul>US banks are having a harder time <a target="_blank" href="https://www.businessinsider.com/personal-finance/credit-score/what-is-debt-collection">collecting debts</a>, so they're taking precautions.According to Federal Reserve data, the past-due debt share for <a target="_blank" href="https://www.businessinsider.com/paid-off-credit-card-debt-solid-plan-2024-6">credit card</a>, <a target="_blank" href="https://www.businessinsider.com/consumer-credit-card-debt-auto-loans-delinquency-economic-outlook-bofa-2024-9">auto</a>, and <a target="_blank" href="https://www.businessinsider.com/commercial-real-estate-debt-property-losses-mortgage-interest-rates-prices-2024-7">commercial real estate</a> has recently risen to above pre-pandemic levels. The share of debt banks have written off as a loss because they couldn't collect it has also <a target="_blank" class="" href="https://www.federalreserve.gov/releases/chargeoff/chgallsa.htm">ticked up</a>, with the charge-off rate for two of these three loan types the <a target="_blank" class="" href="https://fred.stlouisfed.org/series/CORCCACBS">highest</a> they've been in <a target="_blank" class="" href="https://fred.stlouisfed.org/series/CORCREXFACBS">more than a decade</a>.Business Insider spoke to industry insiders who said this has prompted a response from big banks anticipating a continued increase in bad loans. <a target="_blank" href="https://www.businessinsider.com/largest-banks-us-list">US banks</a> have increased their reserves in recent years, effectively setting aside cash to cover potential loan losses.While it's commonplace for banks to increase their reserves as loan levels rise over time, reserves have started gradually making up a bigger share of total loans at firms like <a target="_blank" href="https://www.wellsfargo.com/assets/pdf/about/investor-relations/earnings/third-quarter-2024-earnings.pdf">Wells Fargo</a>, <a target="_blank" href="https://d1io3yog0oux5.cloudfront.net/_9d388ee07cccbcc3c8dc5bafe2ea4aff/bankofamerica/db/775/10116/webcast_transcript/2024-10-15+BAC+3Q+Earnings+Call_ADA.pdf">Bank of America</a>, <a target="_blank" href="https://www.jpmorganchase.com/content/dam/jpmc/jpmorgan-chase-and-co/investor-relations/documents/quarterly-earnings/2024/3rd-quarter/6bca0e4a-703c-4fff-8e70-f026f015fee5.pdf">JPMorgan</a>, and <a target="_blank" class="" href="https://www.citigroup.com/rcs/citigpa/storage/public/Earnings/Q32024/3Q24-SUPP-ForWeb.pdf">Citigroup</a>. Since June 2022, Wells Fargo's and Bank of America's reserves have risen by about $1.8 billion and $2.4 billion respectively. Still, for context, these firms' cash coffers are still considerably lighter than they were during the Great Recession.<h2 id="3bd35426-2903-4a17-860b-981ba0e86427">America's 3 debt pain points</h2>Each month, the New York Fed <a target="_blank" class="" href="https://www.newyorkfed.org/microeconomics/sce#/debtexp-1">asks</a> roughly 1,300 Americans to estimate the chance they'll be unable to make a minimum debt payment over the next three months. Aside from the pandemic, Americans haven't been this pessimistic since 2017.Consumers' struggles to repay credit card and auto debt suggest that <a target="_blank" href="https://www.businessinsider.com/inflation-september-cpi-consumer-price-index-federal-reserve-interest-rates-2024-10">inflation</a> and <a target="_blank" href="https://www.businessinsider.com/fed-cuts-interest-rates-how-much-september-fomc-powell-inflation-2024-9">interest rates</a>, while moderating in recent months, are still taking a toll on their finances. Additionally, businesses' struggles to pack back commercial real estate debt show that factors like elevated interest rates and the <a target="_blank" href="https://www.businessinsider.com/office-market-interest-rates-commercial-real-estate-federal-reserve-pandemic-2024-9">remote work revolution</a> are still having lingering effects.Here's a closer look at each of the three debt categories:<h3 id="df61242d-618b-4bfb-824d-874b5a53ce4d">Credit card debt</h3>As of the second quarter of this year, more than <a target="_blank" class="" href="https://fred.stlouisfed.org/series/DRCCLACBS">3%</a> of all credit card accounts in the US had past-due balances — up from less than 2% in 2021.The steady uptick in past-due credit card debt over such a short period of time provides some cause for concern, Bruce McClary, a nonprofit credit counselor and senior vice president at the National Foundation for Credit Counseling, told BI."What we are seeing is that people are struggling to repay debt while continuing to use up what is left of their available credit — forcing more people to start falling behind on their payments and into the hands of debt collectors," he said.David Schiff, senior managing director at FTI, told BI that prolonged debt-repayment problems will eventually present a bigger risk to the economy.The increase in reserves raises "real concerns about the softness of certain assets classes — specifically ongoing uncertainty around the commercial real estate market, and increasing worry about the number of revolving credit card customers and their rapidly growing balances," Schiff told BI.<h3 id="2c271636-eeeb-43a1-a28b-b69f0c808b83">Auto debt</h3>A Federal Reserve <a target="_blank" class="" href="https://www.federalreserve.gov/econres/notes/feds-notes/rising-auto-loan-delinquencies-and-high-monthly-payments-20240926.html">report</a> published on September 26 found that auto loan delinquency rates rose "substantially" above pre-pandemic levels by the end of 2023, driven in large part by growth in monthly debt payments.In fact, a growing number of Americans owe more than their cars are worth, according to a <a target="_blank" href="https://affiliate.insider.com?h=76e351eb917843c15c21c91acd7d8e92304c81583e3e5bb129c38093d6e7aff2&amp;postID=67114ad8434c477c23344eb6&amp;postSlug=big-banks-preparing-loan-loss-credit-card-auto-debt-cre-2024-10&amp;site=bi&amp;u=https%3A%2F%2Fwww.edmunds.com%2Findustry%2Fpress%2Fnegative-equity-on-the-rise-the-average-amount-owed-on-upside-down-car-loans-hit-an-all-time-high-in-q3-2024-according-to-edmunds.html%3Futm_source%3Dsubstack%26utm_medium%3Demail">report</a> published on October 15 by the automotive website Edmunds. Stephen Biggar, director of financial services research at Argus Research, told Business Insider that if a bank is forced to repossess such a vehicle, the car's value wouldn't even cover the loan, resulting in losses to the bank. He said that the uptick in auto delinquencies is "not a spike, but is kind of a concern about what goes on from here."<h3 id="108a8464-8ec8-4eb3-8b19-f2eb7af18b2d">Commercial real estate</h3>Another problem for banks is that some businesses with commercial real estate loans are struggling to repay them. Biggar said some of this is tied to high vacancy rates among offices. While many companies have called employees back to the office since the height of the pandemic, office vacancy rates still <a target="_blank" href="https://www.axios.com/2024/07/09/office-vacancy-rate-record-high">rose</a> to <a target="_blank" href="https://www.businessinsider.com/real-estate-outlook-office-buildings-vacancies-commerical-markets-investors-remote-2024-1">record highs</a> over the past year.Elevated interest rates have also made it difficult for businesses to pay back debt on commercial real estate loans related to offices, retail, hotel, and apartment building properties, among others. That's because some loans are coming due — forcing businesses to refinance at <a target="_blank" href="https://www.businessinsider.com/commercial-real-estate-big-trouble-crash-bank-crisis-2024-2">much higher interest rates</a>.To be sure, we're still far from a debt crisis: The share of past-due and charged-off debt generally remains in line with historical levels after rising from pandemic-era lows. Additionally, some banks are simply restoring reserves that were depleted during the pandemic. However, if the <a target="_blank" class="" href="https://www.businessinsider.com/recession-outlook-economy-layoffs-inflation-spending-job-market-tariffs-morgan-stanley-2024-10">economy slows</a> and the <a target="_blank" class="" href="https://www.businessinsider.com/job-market-recession-unemployment-rate-september-payrolls-report-fed-cuts-2024-10">unemployment rate</a> rises further, the uptick in delinquencies could become a larger concern, Biggar said.<h2 id="3723386c-1711-4911-97f5-b3d9337f3327">Wall Street acknowledgement</h2>While <a target="_blank" href="https://www.businessinsider.com/wall-street-banks-earnings-calls-interest-rates-fed-cuts-debt-2024-10">banking executives</a> this earnings season generally spoke highly of the economy, they did acknowledge that elevated prices and interest rates continue to weigh on American consumers."Our customers are healthy, but more discerning in their spend with signs of stress isolated," <a target="_blank" class="" href="https://www.fool.com/earnings/call-transcripts/2024/10/15/citigroup-c-q3-2024-earnings-call-transcript/">said</a> Jane Fraser, Citi's CEO, referring to consumers with lower credit scores.Brian Moynihan, Bank of America's CEO, <a target="_blank" href="https://www.fool.com/earnings/call-transcripts/2024/10/15/bank-of-america-bac-q3-2024-earnings-call-transcri/">said</a> that overall consumer spending remains strong but that "consumers are worried of the cost of living, worried about higher rates, and other matters."Charles Scharf, Wells Fargo's CEO, <a target="_blank" class="" href="https://www.fool.com/earnings/call-transcripts/2024/10/11/wells-fargo-wfc-q3-2024-earnings-call-transcript/">said</a> the bank hasn't seen "meaningful changes" in delinquency rates across its credit portfolio, but that there is evidence of financial strain among some Americans."We continue to see more pronounced stress in certain customer segments with lower deposit and asset levels where inflation has partially offset strong employment and wage growth," he said.Jeremy Barnum, JPMorgan's CFO, <a target="_blank" class="" href="https://www.fool.com/earnings/call-transcripts/2024/10/11/jpmorgan-chase-jpm-q3-2024-earnings-call-transcrip/">said</a> that consumers' discretionary spending has "normalized" following particularly strong levels in recent years.The financial roller coaster of pandemic payments, whipsawing inflation, and high interest rates are especially affecting lower-income Americans."We know consumers at a certain income level and below are strapped," Biggar said, adding, "There's been a lot of concern, particularly at the lower income category, that people are unable to make ends meet."Going forward, Biggar said that many banks could continue adding to their reserves, particularly if the unemployment rate rises further. That might not ultimately be necessary, since the jobless rate has <a target="_blank" href="https://fred.stlouisfed.org/series/UNRATE">stabilized</a> over the past two months after a surprise increase."I'm not expecting any big spike from here unless the unemployment rate moves materially higher," Biggar said of further reserve reinforcements.

You Searched For "Axis Bank bad loans" and got 6 results

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