Despite recent warnings from the Reserve Bank of India (RBI) regarding the escalating risk associated with unsecured loans, major private banks in the country, including ICICI Bank, Kotak Mahindra Bank, and Axis Bank, have reported substantial year-on-year growth in their personal loan portfolios.
Leading private banks in India have reported significant growth in their personal loan portfolios for the third quarter from September to December 2023. ICICI Bank led the way with an impressive 37% year-on-year (yoy) surge, while Kotak Mahindra Bank and Axis Bank demonstrated robust performances, posting growth rates of 32% and 28% yoy, respectively. IndusInd Bank and Federal Bank adopted aggressive strategies, achieving exceptional yoy surges of 57% and 86% in their personal loan portfolios. In contrast, HDFC Bank recorded a comparatively slower growth at 10% yoy.
‘All is well’
Despite concerns, the surge in lending is not concentrated in the higher-risk low-ticket segment (below Rs 50,000). Banks claim to be extending loans to existing customers with robust credit histories, avoiding substantial exposure to potentially riskier segments, according to reports.
Despite the RBI’s move in November to increase risk weights on secured loans, particularly unsecured personal loans, credit cards, and lending to non-banking financial companies (NBFCs), private banks seem undeterred. The central bank’s decision aimed at curbing the rapid expansion of unsecured loans by elevating the cost of funds has not thwarted the ongoing growth.
Though concerns persist about the RBI’s caution and the potential risks associated with unbridled personal loan growth, industry experts anticipate that banks will persist in this lending segment due to its high-margin nature. The profitability of unsecured loans remains a significant driver for banks, suggesting an ongoing tension between regulatory caution and financial incentives.
