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Banks see surge in unsecured loans

Unsecured loans of India's leading banks in the form of credit cards and personal loans are rising as the lenders eye alternative channels in the wake of rising bad loans of companies.

By Our Special Correspondent
  • Published 16.07.18
  •  

Mumbai: Unsecured loans of India's leading banks in the form of credit cards and personal loans are rising as the lenders eye alternative channels in the wake of rising bad loans of companies.

ICICI Bank saw a 41 per cent growth in its unsecured credit card and personal loan portfolio during the year ended March 31, 2018, while its rival HDFC Bank reported a rise of 39 per cent in credit cards and 44 per cent in personal loans.

India's largest lender State Bank of India (SBI) also saw strong growth rates in these segments. The story is similar for some other lenders, too.

Such loans have jumped over the past three years as banks, who have been witness to elevated NPAs in their corporate loan portfolio, have turned their attention to the retail segment where the asset quality is much better. Ready availability of customer data have been a catalyst.

According to Crisil Research, between the fiscal year 2015 and 2018, such credit - comprising personal, small and medium enterprise (SME) and credit card loans - clocked a compound annual growth rate (CAGR) of 27 per cent, or almost four times growth in bank credit. As of March 2018, the outstanding unsecured loans stood at around Rs 5 lakh crore, accounting for 26 per cent of retail lending, compared with 21 per cent three years ago.

The rating agency has now forecast it to nearly double over the next three years.

"Over the next three fiscals, the pacy growth rate would decelerate a bit, but would still move at a 24-25 per cent CAGR clip. Consequently, outstanding unsecured loans should reach around Rs 9.5 lakh crore by fiscal 2021," Prasad Koparkar, senior director, Crisil Research, said.

Banks are also projecting strong growth rates. Speaking to analysts at a earnings conference call in May, Chanda Kochhar, managing director & CEO, ICICI Bank, said the lender was targeting a growth of over 40 per cent in personal loans and credit card. Kochar has since gone on leave.

As of March 31, 2018, the bank's unsecured credit card and personal loan portfolio grew 41 per cent year-on-year, albeit on a relatively small base, to Rs 30,246 crore and accounted for around 6 per cent of the overall loan book.

"We continue to grow the unsecured credit card and personal loan portfolio primarily driven by a focus on cross-sell to our existing customers," Kochhar said.

Personal loans at HDFC Bank stood at Rs 71,876 crore as of March 31 2018 compared with Rs 66,817 crore in December 31 2017 and Rs 50,067 crore in March 2017 while the credit card book at the private sector lender was at Rs 36,155 crore against Rs 25,995 crore in the same period.

Data from the RBI show personal loans have risen around Rs 9,600 crore till May 25. However, the classification includes consumer durables, housing including priority sector housing, advances against fixed deposits, advances to individuals against shares and bonds, credit card outstanding, education, vehicle loans and other personal loans.