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’Worried over high growth in personal loans’
RBI is monitoring personal loans for signs of stress
New Delhi: Reserve Bank of India governor Shaktikanta Das cautioned against the risks of “very high growth” in personal loans and urged lenders to strengthen their internal surveillance mechanisms and address the build-up of risks.
“Certain components of personal loans are, however, recording very high growth. These are being closely monitored by the Reserve Bank for any signs of incipient stress,” Das said during his monetary policy speech.
While this is the first time RBI has publicly voiced concerns about the sharp growth in personal loans, the regulator has been cautioning banks about their rising unsecured loan portfolio during its meetings with bankers.
The latest RBI data showed that personal loans grew by 30.8% in August compared to 19.4% a year ago. Total credit to the segment stood at ₹47.7 trillion in August, from ₹36.47 trillion the year earlier.
Credit to the sector increased 17% to ₹47.70 trillion in August from ₹40.85 trillion in April, significantly surpassing last year’s 7% growth rate for the same period. Within this, credit card outstanding grew by 30% compared with 26% a year ago. Vehicle loans saw a 21% growth, and loans against jewellery grew by 22%.
According to RBI, personal loans contributed 38% of incremental bank credit in August.
“In the last couple of years, year-on-year growth in retail credit has been close to 30% in most institutions. On average, unsecured retail growth has been 23%. In the context of the rest of the credit growth, which is anywhere between 12-14%, it looks to be an outlier. It’s our intention to inform banks this is an outlier level of growth,” said J. Swaminathan, deputy governor of RBI. “This is a general system level advisory so that banks and NBFCs tighten their internal prudential measures and grow their portfolio sensibly.”
Das, however, noted that the Indian banking system continues to be resilient, backed by improved asset quality, stable credit growth and robust earnings growth.
According to a report by India Ratings in August, non-banking financial companies (NBFCs) have increased the proportion of collateral-free loans in their portfolio in search of higher yields to offset the impact of higher borrowing costs.
According to the data of 12 large NBFCs compiled by the rating agency, the share of unsecured loans jumped to 30% of total assets under management in FY23 from 26% in FY22 and 23% in FY21.
The assets under management of these unsecured loans grew 51% yearly during fiscal year 2023 as against 30% during FY22 and -2% during FY21.
In comparison, the total AUM of these NBFCs grew by 19% y-o-y during FY23 as against 9.6% in FY22 and 3.3% in FY21.
These unsecured loans constitute small business loans and personal loans like consumer durables and individual loans.
“NBFCs are facing stiff competition in secured lending space from banks and small finance banks, which could incrementally restrict the complete passthrough of increases in borrowing cost in 2HFY24, driving margin compression by 20-25bp y-o-y in FY24. This has also led to NBFCs venturing out on the unsecured lending side to protect margin, where growth has been elevated through partnerships with fintechs. However, NBFCs providing both asset (co-lending) and liability support to fintechs need to calibrate their approach as the end-use of these loans largely remains consumption-based where the borrowers overleveraging could be a large risk,” said India Ratings in its report.
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Business NewsEconomy’Worried over high growth in personal loans’
First Published:6 Oct 2023, 11:34 PM IST
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