Unsecured loan portfolio of the banking sector doubled in four years from Rs 5.5 lakh crore to Rs 11.1 lakh crore between April 2019 and April 2023. Another sticky portfolio, though smaller in size- credit card has also double in the period from Rs 91913 crore to Rs 2 lakh crore.
Soaring unsecured loans amid marginal income increases could put pressure on individuals leading to a rise in borrowers’ missing payments.
Unsecured personal loans extended by lenders including banks and NBFCs rose 20.2% growth in value in the October-December’22 quarter over the same period a year ago, according to credit Bureau CRIF Highmark.
Significantly the number or volume of smaller sized loans- less than Rs 50,000 rose at a faster pace than 24.7 percent compared to loans siszd over Rs 50,000 crore which rose 22.8 percent according to the credit bureau. This means that the borrowing among the lesser privileged is going up at a higher pace. With incomes levels in this segment hit during COVID, there could be a stress build up in this sector if jobs and incomes do not rise.
For banks, the share of this fourth largest segment in terms of their non-food, non-agri portfolio size after large corporates, home loans and loans to NBFCs has gone up from 5.6 percent in March 2019 to 8 percent in April, the RBI data indicates.The stress in the sectors has started to show though the exposures are too small to have a systemic implication. The gross NPAs for credit card outstanding is the highest among retail loans at 15.8 percent for public sector banks accounting for almost half the banking business is at 15.8 percent as of September 2022 according to the latest Financial Stability Report. However, the share of public-sector banks in the credit card business is relatively small.Market analysts point to a concern within the regulator over such a surge in loans ” True, retail and SME credits including unsecured lending has helped in the growth of bank loan book in FY 2023” said Karthik Srinivasan, senior vice president and Group Head, Icra.” But at the same time various communications from the central bank point to the regulator’s concerns on high growth in unsecured lending. One may not be surprised if it comes out with a policy to contain this growth in unsecured lending “.
The tightening of norms could be in the form of higher risk weights on such loans or a sectoral cap, say bankers.
The demand for such loans tends to be particularly higher during festivals. NBFC – Fintechs, Private Banks, and NBFCs other than Fintechs gained a share in origination (value) in the festive season from Q3 FY22 to Q3 FY’23 according to CRIF as banks tend to offer a number of sops like waiving processing fees and concessional interest rates during the period.
