Growth in personal loans slows down, shows RBI data

The data showed that as of October 2023, the value of outstanding personal loans stood at Rs 45.51 lakh crore compared to Rs 38.55 lakh crore in the year prior, and Rs 31.99 lakh crore in October 2021.

The growth in unsecured personal loans slowed down in October 2023 compared to last year, according to the Reserve Bank of India's (RBI) sectoral credit data. Per the data, growth eased from 20.8 to 18 percent in October 2022. The figure is does not include HDFC Bank’s unsecured loans.

The data showed that as of October 2023, the value of outstanding personal loans stood at Rs 45.51 lakh crore compared to Rs 38.55 lakh crore in the year prior, and Rs 31.99 lakh crore in October 2021.

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RBI advises caution

The slowdown in growth comes amid concerns flagged by RBI Governor Shaktikanta Das over the surge in such loans, who reminded banks to strengthen their surveillance mechanisms.

“Banks and NBFCs would be well advised to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, and institute suitable safeguards in their interest,” Das said at a press conference after the Monetary Policy Committee (MPC) meeting in October.

Das added that though all parameters, including gross non-performing assets (NPAs) of banks and non-banking finance companies (NBFCs), looked better as of April-June, the central bank’s advisory on the growth of unsecured loans was only to sensitise lenders about potential pitfalls.

In line with this, the RBI, on November 16, increased the risk weight on consumer credit from 100 to 125 percent.

What did the banks say?

The country's largest bank, the State Bank of India (SBI), does not see any cause for concern in its unsecured book, said bank Chairman Dinesh Khara.

"We are not concerned about our unsecured book. Our unsecured book is better than our secured book. Around 86 percent of our unsecured book is to salaried customers," Khara said post the bank’s Q2FY23-24 quarterly results.

Echoing Khara, Bank of Baroda (BoB) Executive Director Joydeep Dutta Roy also said that he does foresee any concerns regarding the bank’s unsecured loan book.

"Our unsecured loans are only to existing customers. So it’s not a problem for us," said Dutta at FIBAC, a banking conference, in November 2023.

Also read: No major concern on BOB's unsecured loan book, says top official

"We know our customer base, know their track record through their accounts. Moreover, we have the cash flow of their salaries. So it is quite secure for us," said Dutta.

Among private sector lenders, Kotak Mahindra Bank's Chief Financial Officer Jaimin Bhatt said the bank could comfortably increase its unsecured portfolio.

“We are comfortable with growth and it is on track. We are looking at growing in the mid-teens,” Bhatt said at a post-results press conference.

R Subramaniakumar, RBL Bank MD, said there is no stress in its retail, microfinance, and credit card businesses.

“Our business and collection is on track. We will continue our aggressive growth in retail and credit card portfolio,” Subramaniakumar added at a post-results press conference.