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Indian Banks Struggle with Over Rs 93,240 Crore in Stressed Unsecured Loans
November 28, 2023
Indian banks are currently grappling with a significant challenge as the burden of unsecured loans reaches an alarming Rs 93,240 crore. These loans fall under the category of Special Mention Accounts (SMA) due to signs of stress or overdue repayments. This worrisome figure accounts for nearly seven percent of the total outstanding unsecured loans, which amounts to Rs 13.32 lakh crore.
The issue is more pronounced in public sector banks, where the SMA rate for unsecured personal advances is 9.9 percent, compared to private banks, which record a 4.0 percent SMA rate for unsecured retail loans. The SMA categories, namely SMA-0, SMA-1, and SMA-2, indicate varying degrees of overdue payments, contributing to the growing concern.
As of March 31, 2023, special mention accounts for secured retail advances and unsecured personal loans stand at seven percent. The Reserve Bank of India’s classification includes SMA-0 (no overdue payment but signs of stress), SMA-1 (31-60 days overdue), and SMA-2 (61-90 days overdue). Repayment delays exceeding 90 days lead to classification as a non-performing asset (NPA).
The growth of unsecured personal loans in banks from March 2017 to March 2023 has surged by 21 percent, surpassing the 19 percent growth in personal loans during the same period. Unsecured personal loans, covering credit card receivables, consumer durable loans, and other personal loans, constitute almost one-third of the total personal loan credit of Rs 41 lakh crore as of March 31, 2023, according to CareEdge Ratings.
Non-Banking Financial Companies (NBFCs) contribute Rs 10.9 lakh crore to personal loans. Fintech NBFCs appear to be the most vulnerable to potential risks associated with unsecured personal loans, followed by private sector banks, public sector banks, and other NBFCs.
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