Private banks are aggressively expanding their personal loan portfolios, with major players like ICICI Bank, Kotak Mahindra Bank, and Axis Bank experiencing notable growth rates of 37%, 32%, and 28% year-on-year (yoy), respectively.
Despite the Reserve Bank of India (RBI) raising risk weights for unsecured loans, private banks have sustained growth in their personal loan books during the September-December quarter. Quarterly reports indicate a year-on-year increase ranging from 10% to 86% for these banks, showcasing a robust performance.
Leading the growth, IndusInd Bank and Federal Bank have been particularly assertive, achieving remarkable yoy growth rates of 57% and 86%, respectively. In contrast, the largest private lender, HDFC Bank, experienced a more moderate growth of 10% yoy.
Bankers emphasize that the surge in lending is not concentrated in the lower-ticket segment (less than Rs 50,000), where the perceived risk is higher. Instead, the focus is on extending loans to existing customers with a strong credit history.
In response to concerns about potential risk, Anindya Banerjee, Group Chief Financial Officer of ICICI Bank, explained that measures have been taken to refine credit parameters in the unsecured loan mix. This includes identifying cohorts with higher delinquencies and adjusting origination in those segments. Additionally, the bank has rationalized sourcing payouts and adjusted pricing on personal loans to mitigate risks.
Sumit Bali, Group Executive and Head of Retail Lending at Axis Bank, assured stakeholders that the bank’s growth in personal loans is a result of ongoing transformation projects and emphasized the commitment to maintaining quality. He revealed that 80% of their customers in this segment are existing bank customers.
Despite the RBI’s move to increase risk weights on secured loans in an effort to curb unsecured loan growth, experts believe that banks will persist in prioritizing personal loans due to their high margins. Ajit Kabi, a Research Analyst at LKP Securities, suggests that the allure of high yields will likely drive continued focus on unsecured lending by banks, even in the face of increased regulatory scrutiny.
