2023-10-20 08:07:23
India’s central bank is not currently considering changing existing norms for banks’ unsecured loan portfolios as there is no build-up of stress in the sector yet, two people told Archyde.com aware of the question.
Indian banks have seen a surge in unsecured loans – mainly personal loans and credit cards – that has outpaced overall bank credit growth of around 15% over the past year, attracting attention of the Reserve Bank of India (RBI).
Bank collections from credit cards reached 2.18 trillion rupees ($26.26 billion) as of August 25, compared to 1.68 trillion rupees a year earlier, according to the latest RBI data. Outstanding personal loans increased by 26% during the same period.
“The problem is not systemic at this stage and is limited to four or five banks,” said one of these people, who is familiar with the central bank’s thinking. This person did not name the banks in question.
“The RBI has already cautioned these banks and increased its vigilance on unsecured loans, but there may be no need at this stage to increase risk weights for unsecured loans.
Both sources declined to be identified because they are not authorized to speak to the media. The RBI did not respond to an email from Archyde.com seeking comment.
According to RBI norms, the risk weights – or the capital that banks must set aside for each loan – on unsecured personal loans and credit card outstandings are currently 100% and 125%, respectively.
“The deployment of overall bank credits on credit cards and personal loans as compared to the total proportion of loans in the system is not very alarming at this stage for the RBI to increase the risk weights,” the second person said.
RBI Governor Shaktikanta Das said earlier this month that the central bank was closely monitoring some fast-growing personal loan categories for signs of emerging stress.
Subsequently, Archyde.com reported that the RBI was particularly concerned regarding the rise of small personal loans of up to 10,000 rupees, taken for a tenure of three to four months.
Analysts, too, were cautious regarding the growing risks of downgrades in banks’ unsecured retail loans. UBS downgraded Indian banks this month, citing increased default risks in unsecured retail loans.
($1 = 83.0162 Indian rupees)
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