Amid mounting concerns over delinquencies, public sector lenders have assured the finance ministry that they do not see any systemic risks emanating from small unsecured loans as their overall exposure remains small. The finance ministry had asked state-run banks to review their small loan portfolios and submit a report detailing the situation.
Banks said the number of these loans may be large but the ticket sizes are not high.
“Banks have conveyed that their exposure is not large,” a person familiar with the development said.
An official said that the government has asked lenders to watch for any signs of incipient stress. “Almost all PSBs (public sector banks) have stated that in this segment there has been no spike in delinquencies and most borrowers have credit scores of 700 and above,” he said, underscoring the stable asset quality of these loan accounts.
The ministry’s review came after Reserve Bank of India (RBI) governor Shaktikanta Das, in his monetary policy statement last month, asked banks to pay more attention to the unsecured lending segment, flagging the risks to financial stability.
“Certain components of personal loans are, however, recording very high growth,” he had said, adding that these were being closely monitored by the Reserve Bank for any sign of stress. “Banks and NBFCs (non-banking finance companies) would be well advised to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, and institute suitable safeguards in their own interest. The need of the hour is robust risk management and stronger underwriting standards.”
A fourth of the overall retail loans by volume that originated between January 2022 and June 2023 have been small-ticket personal loans of less than Rs 50,000. Over half the borrowers in the segment in the June 2023 quarter already had four active credit products while getting a new loan, according to Transunion Cibil.
A recent report by Swiss investment bank UBS said public sector banks are likely to have higher defaults than their private counterparts, as credit losses from unsecured retail loans could increase 50-200 basis points in 2024-25. A basis point is a hundredth of a percentage point.
“State-owned banks likely had 52% of their outstanding personal loans to borrowers with credit scores below 644 (medium to high-risk borrowers), while NBFCs had 49% and large private banks about 31% in June 2023,” the UBS report said. Bankers maintain that their exposure is limited.
Source: The Economic Times
The post Public Sector Banks Assure Government Small Loans Not A Systemic Risk first appeared on Latest India news, analysis and reports on IPA Newspack.
Follow Arabian Post
Select Arabian Post as your preferred source on Google and MSN News for trusted business news and Arab politics and updates.
