loans: lenders are getting cautious about high risk unsecured loans
The performance of these loans is deteriorating given the low capital cushion and risky nature of these assets, said lenders, who have become very cautious while providing new unsecured loans.
“Unsecured retail, credit cards and microfinance loans pose a much higher risk,” said Kotak Mahindra Bank Managing Director Uday Kotak. “We will definitely be pushing the gas and doing credit underwriting and keeping in mind that there will be a huge fundraising challenge ahead for the entire financial industry.”
The private lender had reduced its unsecured portfolio to 5.8% of total credit at the end of March, against 7.5% a year earlier.
Peer IDBI Bank, which recently managed to evade rapid remedial action by the Reserve Bank of India, is also avoiding such loans.
“We absolutely don’t want to waste risky assets; our goal is to onboard clients who have a credit score of 700 and above, ”said Rakesh Sharma, Managing Director of IDBI Bank. “We have kept a very small portion of the unsecured books. Our goal is to develop the mortgage loan portfolio.
Personal loans in the banking sector grew at a slower pace of 10.2% in the most recent fiscal year ended March 31, compared to more than 15% the year before, according to RBI data. Durable consumer loans were the hardest hit and were contracted by more than 21% between March 2020 and 2021. The segment had grown by 47.6% the previous year.
Outstanding credit cards totaled Rs 1.16 lakh crore at the end of March, an increase of 7.8% in one year against growth of more than 22.5% in fiscal year 2020.
“We have always said that our unsecured portfolio represents less than 5% of our overall loan portfolio and that is the stated intention. We felt that the unsecured portfolio takes time to build and that you need to have internal clients before you start to develop this portfolio, ”said Sumant Kathpalia, Managing Director of IndusInd Bank.
National rating firm India Ratings said that due to a doubling of stress on individuals, banks over the past year have tightened the filters, especially on new bank customers, and have therefore slowed down. disbursements. This, along with the lack of a nationwide foreclosure like last year, could prevent comparable stress in retail assets, he said.
The aversion to unsecured loans has led banks to push home loans and gold lending more. The outstanding mortgage loans increased by 9.1% to reach 14.5 lakh crore in fiscal year 2021. Gold loans saw the largest increase with a total outstanding amount reaching Rs 60,464 crore, or a 81.6% increase in one year.