Driven by a strong demand, consumer durable loans from banks in metro cities have risen more than fourfold over the past five years. These loans have gone up from Rs 6,061 crore in March 2019 to Rs 25,654 crore in March 2024, reflecting a growth of 323%, according Reserve Bank of India (RBI) data.
In rural, semi-urban and urban areas, such loans have witnessed growth of 55%, 84% and 124%, respectively, over the same period.
“Urban areas have customers with higher disposable income who enjoy splurging on electronic gadgets,” head of retail banking of a private lender told FE. “In rural and semi-urban areas, people are less inclined to buy electronic gadgets or home appliances by taking loans. They approach banks for loans mainly when they want to buy a house or a vehicle or need funds for business requirement,” he added.
Fuelled by a strong demand, the share of metro and urban areas in total consumer durable loans expanded to 77% by the end of March this year, from 61% at the end of March 2019. Banks’ total consumer durable loans reached Rs 40,432 crore as of March 2024, from Rs 13,969 crore as of March 2019, showing a growth of 190%.
The surge in consumer durable and other unsecured loans caught the attention of the banking regulator, prompting it to hike risk weights. RBI governor Shaktikanta Das said in the recent monetary policy that the central bank was closely monitoring the rise in unsecured retail loans to determine if additional measures are necessary to moderate this lending. Concerned by the unbridled growth in personal loans, the RBI in November last year, increased the risk weights on unsecured loans. The move has resulted in higher capital requirements for banks and NBFCs, raising the cost of funds for borrowers.
Experts say banks need to diversify and should not over-rely on a particular segment or territory to grow their business.
“The regulator considers two components when it looks at portfolio growth — the quality of portfolio growth and diversification of the portfolio. Diversifying the portfolio will help reduce the portfolio risk and address the systemic risk that the regulator is concerned about from a financial stability standpoint,” said Vivek Iyer, partner, Grant Thornton Bharat. “Having said that, the asset quality will still be a significant concern and the regulator expects the industry to make substantial investments in governance and technology to ensure that the quality of underwriting standards is not diluted and continues to remain robust.”