Private banks and non-banking financial companies (NBFCs) have significantly expanded their personal loan portfolios in the second quarter of the current financial year, despite concerns raised by the Reserve Bank of India (RBI).
Personal loan portfolios of ICICI Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank and Bajaj Finance rose 20-60% year-on-year in the last quarter.
IndusInd Bank’s personal loan book surged 63%, followed by ICICI Bank at 40%, Kotak Mahindra Bank at 35% and Axis Bank at 25%. Bajaj Finance’s personal loans rose 22%.
Under personal loans, banks sell unsecured loans such as credit cards, consumer loans, microfinance and other small-ticket loans not backed by any collateral.
The sharp rise in unsecured personal loans comes in the backdrop the RBI governor’s statement after the latest monetary policy committee meeting that banks should be careful and avert any crisis in unsecured loans. “You have to be careful, you have to just keep your eyes and ears open. And nose also open. You have to smell where the crisis is likely to come up,” Shaktikanta Das had said.
Bankers say they are maintaining a close vigil on unsecured loan portfolios and the growth is backed by strict monitoring and supervision.
“The risk build-up is happening in low-ticket size, the loan segment which is below Rs 50,000. As far as ICICI Bank is concerned, we do not have any meaningful presence in this segment. We give loans only to customers who fall in our risk threshold,” said Sandeep Batra, executive director, ICICI Bank, in the earnings call. The lender is confident that its risk framework will prevent build-up of risk in the segment.
“We continue to grow based on the risk guardrails that we have set for ourselves. This growth is not coming at the cost of any compromise on what we believe is the right kind of risk to take. Right now in our portfolio, we are not seeing anything which is telling us that our risk framework is not working,” said Amitabh Chaudhry, MD & CEO of Axis Bank, in the earnings call, adding that the bank sees growth momentum continuing at this point in time.
While banks are confident about their unsecured loan portfolios, independent experts say lenders need to become extra cautious. At present, the banking system is in a good shape, but if the economy slows down due to any unforeseen global uncertainty, it may cause stress in the system.
“All the banks should be cautious while growing their personal loan portfolios. They should keep reviewing their portfolios very carefully, provide for stresses proactively and take a measured growth approach to increasing the size of their personal and retail portfolios,” Vivek Iyer, partner – financial services, Grant Thornton Bharat, told FE.