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Private banks increase scrutiny on small unsecured loans

October 23, 2023

Private banks increase scrutiny on small unsecured loans
Indian banks are facing growing worries over small-ticket unsecured personal loans, with borrowers struggling to repay dues, leading to an increase in delinquencies. Both Yes Bank and Kotak Mahindra Bank have reported higher delinquencies compared to last year, raising concerns among financial institutions. Yes Bank’s MD & CEO, Prashant Kumar, acknowledged the rising trend in delinquency, emphasizing the need for tighter underwriting policies. He stated, “We have seen a slight deterioration. Compared to six months ago, a larger part of the portfolio is in the 30-plus days past due category.” Yes Bank reported a net profit of Rs 115 crore for Q2FY24, marking a 47% increase from the previous year.

Kotak Mahindra Bank’s MD & CEO, Dipak Gupta, acknowledged the elevated delinquencies in the unsecured segment, although they remain lower than pre-Covid levels. He stressed the importance of balancing growth and risk management, stating, “The build-up of risk could never be ruled out.” The Reserve Bank of India (RBI) has also flagged concerns over the surge in unsecured loans, indicating a potential challenge for the banking sector. As lenders grapple with this issue, they are expected to reassess their lending strategies and risk management practices in the small loan segment.

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