MUMBAI: Private banks have continued to grow their personal loan books in the September-December quarter even after the Reserve Bank of India (RBI) raised risk weights for unsecured loans. According to the banks’ latest quarterly numbers, their personal loan books have risen between 10% and 86% year-on-year (yoy).
Leading banks like ICICI Bank, Kotak Mahindra Bank and Axis Bank have grown their books 37%, 32% and 28% yoy, respectively. Others like IndusInd Bank and Federal Bank have been more aggressive by growing at 57% and 86% yoy. The largest private lender HDFC Bank saw a relatively slower growth of 10% yoy.
However, bankers say that the rise in the lending has not been in the low-ticket segment of less than Rs 50,000 where the risk buildup is perceived to be higher comparatively. In fact, they say that they do not have a significant presence in this segment. Also, they are extending loans to existing customers who have a healthy credit history.
In ICICI Bank’s post-earning call, Anindya Banerjee, Group Chief Financial Officer said, “On the unsecured loan mix, as far as personal loans is concerned, we have taken some steps in terms of refining the credit parameters. Basically, in any portfolio, you have certain cohorts which contribute more to the delinquencies, and you try to figure out what are the origination markers of those cohorts and then cut origination in those particular segments, which is what we have done.”
He added that that the bank has also, rationalised, for example, sourcing payouts, as well as moved pricing on personal loans by maybe 20 basis points, 25 basis points. “So I would expect that growth in that portfolio may continue to moderate a little bit, even from a current level,” said Banerjee.
“The growth in personal loans has continued from Q2 onwards. We have been running various transformation projects and this is a result of some of those that are now fructifying. We are midway through that journey,” explained Sumit Bali, Group Executive and Head – Retail Lending Axis Bank in earnings call, adding that the bank is not sacrificing quality for growth and quality remains sacrosanct. “80% of our customers are existing bank customers,” Bali added.
Worried about the sharp rise in personal loans, the RBI had decided to increase risk weights on secured loans in November last year when it directed banks and non-banking financial companies to reserve more capital for risk weights. The mandatory risk weight requirement was increased by 25 percentage points and is applicable to unsecured personal loans, credit cards and lending to NBFCs.
The move was aimed at slowing the pace of unsecured loans by increasing cost of funds for lenders. The RBI Governor Shaktikanta Das has also expressed concerns about unbridled growth in personal loans and advised lenders to go slow on unsecured loans.
However, most experts believe that banks will continue to bet on personal loans as these loans have high margins compared other secured loans. “Banks will continue with their unsecured lending even after the RBI has increased risk weights because these are high yielding loans,” Ajit Kabi, Research Analyst at LKP Securities.
Source: The Financial Express
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