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Bank Chiefs Raise Alarm on Fintech-Driven Small Personal Loans

November 06, 2023

Bank Chiefs Raise Alarm on Fintech-Driven Small Personal Loans
Bank leaders have voiced concerns about the growing stress in unsecured loans, specifically in the realm of fintech-driven digital lending for small-ticket personal loans. This niche market, where most traditional banks do not venture, has become a cause for worry. Industry experts believe that the Reserve Bank of India (RBI) might impose stricter regulations on loans under Rs 50,000, deeming them riskier.

State Bank of India (SBI) Chairman, Dinesh Khara, asserted the superiority of SBI’s unsecured loan portfolio over secured ones. He stated that SBI does not offer loans below Rs 50,000. Responding to analysts’ queries, Khara revealed ongoing discussions between RBI and banks. According to him, RBI’s primary concern revolves around small loans extended to new-to-bank borrowers. There’s a possibility that RBI might increase the risk weightage for this segment.

Bank of Baroda MD & CEO, Debadatta Chand, emphasized their prudent lending practices, extending unsecured personal loans only to existing customers opening salary accounts. However, Bank of Baroda plans to moderate the growth of unsecured personal loans due to concerns raised in various forums. Chand mentioned a strategy reassessment based on their two to three-year track record.

IndusInd Bank Chief, Sumant Kathpalia, clarified that the stress isn’t in personal loan portfolios but rather in low-value loans, particularly those below Rs 50,000 or Rs 70,000. He highlighted that personal loan flows haven’t significantly increased. Though small-ticket personal loans exhibit some stress, other segments remain stable. ICICI Bank had previously indicated similar concerns, underscoring the need for vigilance in the face of evolving lending landscapes.

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