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To lend or not to lend

To lend or not to lend
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First Published: Thu, Jan 03 2008. 01 15 AM IST
Updated: Thu, Jan 03 2008. 11 53 AM IST
The use of thuggish loan recovery agents by banks has been met with public anger, and rightly so. The central bank, too, has sent missives to banks, asking them to stop strong-arm practices. This suggests that some banks could be facing problems in their consumer loans business. In an article in Mint on Wednesday, Crisil Ltd chief executive Roopa Kudva said the proportion of personal loans and credit card receivables in the total retail portfolios of banks has climbed from 6% in 2004 to 17% in 2007. This is the riskier part of the consumer lending game—with higher default probabilities.
Kudva estimates that retail bank loan defaults could rise from 2.7% in March 2007 to 4% two years later—a problem, but not a crisis.
It’s an easy stick to beat banks with. But that leaves one question unanswered. These loans are often given to those with low or unstable incomes. If banks stop lending to them, where does that leave the celebrated goal of financial inclusion?
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First Published: Thu, Jan 03 2008. 01 15 AM IST
More Topics: Lending | Banking | Loan default | Retail loan | Views |