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Indian Banks Exercise Caution Amid Surge in Small-Ticket Personal Loans
November 07, 2023
In response to the escalating stress observed in the small-ticket personal loans sector, several major Indian banks are treading cautiously in the unsecured loans space. Fuelled primarily by fintech companies disbursing loans under Rs 50,000, unsecured loans have gained popularity due to their accessibility, devoid of collateral requirements. However, mounting concerns regarding potential risks and regulatory constraints have prompted banks to reevaluate their involvement in this segment.
Data from TransUnion CIBIL reveals a 47% Compound Annual Growth Rate (CAGR) in consumption-led unsecured retail loans from March 2021 to March 2023. With the festive season approaching, regulators are worried as digital lending platforms typically witness a 15-20% increase in disbursals during this period.
Bank of Baroda has decided to limit further growth in unsecured personal loans to around 35% in response to widespread concerns. Axis Bank, reporting higher delinquency rates in the sub-Rs 50,000 personal loan segment, has opted out of participating in this sector. State Bank of India (SBI) does not offer loans below Rs 50,000.
The Reserve Bank of India (RBI) issued a warning to banks about the surge in unsecured retail loans. RBI Governor Shaktikanta Das stressed the need for strengthened internal surveillance mechanisms to manage potential risks proactively. Notably, a significant portion of retail loan originations between January 2022 and June 2023 comprised small-ticket personal loans below Rs. 50,000
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