In absolute terms, unsecured loans were at ₹2.2 lakh crore between February 2022 and February 2023. This is almost double the amount banks lent to large corporates in the same period at ₹1.18 lakh crore (or 5% year-on-year) and inching closer to ₹2.49 lakh crore worth of home loans extended by commercial banks.
Unsecured loans rose 26% year-on-year during this period compared to 15% growth in home loans, according to the latest RBI data.
With customers staying shy of mortgages after a more than 250 bps climb in interest rates in the last 11 months, banks are betting big on the unsecured loan portfolio.
“With banks turning pro-risk, they are looking at a faster growth in the cards and personal loan business,” said Anand Dama, analyst, Emkay Global. “Within cards, revolve rates remain sticky and will take time to pick up, subject to no shocks on the way. Banks are relatively aggressive in the high-ticket personal loan business with lenders like HDFC Bank and ICICI Bank at the forefront of growth. Our discussion with a few state-run banks suggests that they are exploring an SBI-like Express Credit product.”
Unsecured loans are popular among new borrowers and lenders see them as having better credit risk profiles than existing borrowers, according to credit information bureau TransUnion Cibil.
Banks have become more diligent in their lending decisions, especially for first-time borrowers. “When navigating the credit application process, 79% of Indians new-to-credit borrowers reported having to apply several times before they received access to a credit product from the institutions where they applied,” the credit bureau said.
While PSU banks are tapping government employees due to a sharp rise in wages, private banks are tapping personal loans to high credit score customers.
“PSU banks have started tapping into their large customer base, especially those who are employed in the government sector, and giving them higher ticket size loans and better pricing,” said Suresh Ganapathy, associate director at Macquarie Capital. “One need not be worried too much about these personal loans as strong growth is a function of them getting more active, and cross-leveraging their strong retail franchise. Also, due to pay commission, wages have increased sharply for government employees.”
As per Macquarie, 40-45% of personal loans are balance transfers or top-up loans and 70% of loans are usually to repeat customers. The end use of these personal loans could be marriages, education, or house renovation where tier-2 and 3 cities are witnessing strong demand.
