No major risk for banks from personal loans: ICRA

Lending to the retail sector is not a major risk to banks’ balance sheets, despite the retail segment growing faster than overall credit growth and the share of unsecured loans increasing within retail. According to Anil Gupta, Senior VP and Group Co-Head at ICRA, credit growth remains robust even with some moderation. He states that even at the expected growth rate for FY2024, incremental credit expansion would be the second highest ever, reaching Rs 16.5-18 lakh crore, second only to the record level of Rs 18.2 lakh crore last year.

This view from the rating agency comes as the Reserve Bank of India (RBI) is reportedly monitoring the increasing unsecured loan books of banks. Banks have been expanding their unsecured retail loans by providing “pre-approved personal loans,” which are credit sanctioned by the banks’ systems based on specific parameters.

The rise in bank credit is mainly driven by the retail sector, which is growing at a faster rate than overall bank credit. Retail now accounts for over 32% of bank loans as of June 2023, up from 18% in 2013. Housing loans represent the largest segment within retail, constituting almost half of the loans in this category. However, the proportion of unsecured loans has been steadily increasing.

Gupta believes that based on current indicators, banks are well-equipped to handle any delinquencies in unsecured loans due to their strong capital positions and operating profits.