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Informist, Monday, Dec. 30, 2024

 

MUMBAI – Despite stability in the quality of banks and non-banks' consumer credit, impairment in the unsecured portion of the portfolio is on the rise, the Reserve Bank of India said Monday in the latest edition of its Financial Stability report, adding that upgrades are falling and slippages to the non-performing asset category from the so-called Special Mention Account-2 bucket are on the rise.

 

"Nearly half of the borrowers availing credit card and personal loans have another live retail loan outstanding, which are often high-ticket loans (i.e., housing and/or vehicle loan). Given that a default in any loan category results in other loans of the same borrower being treated as non-performing by the lending financial institution, these larger and secured loans are at risk of delinquency from slippages in relatively smaller personal loans," the central bank said in the December edition of the Financial Stability Report.

 

Unsecured retail loans have been a concern for the RBI for over a year now, with the central bank in November 2023 announcing measures to curb their growth, including higher risk weights, among others. As per the Financial Stability Report, last year's regulatory measures have slowed the pace of consumer loans at an aggregate level as well as across products and lenders. This is reflected in lower credit enquiry volumes, especially in the unsecured segment, it said.

 

"The decomposition of personal loans by income categories showed that after the high growth phase during 2021-23, loan growth has moderated across all income categories between September 2023 and September 2024, with sharper deceleration in the group with less than INR 500,000 annual income. During the same period, the above INR 1.5 million income category recorded the highest growth. In terms of outstanding loans, the INR 0.5 million-1.5 million income category had the largest share as at end-September 2024," the report said, adding that lenders are showing prudence, with the share of sub-prime customers lower than a year ago.

 

Commenting on microfinance, which has become pain-point for several lenders in recent quarters, the report said the sector is showing signs of stress, with delinquencies rising across "all types of lenders and ticket sizes". In this segment, the first half of 2024-25 (Apr-Mar) saw loans 31-180 days-past-due doubling to 4.30% as at the end of September from the end of March.

 

Crucially, impairment levels remained high for borrowers who had availed loans from multiple lenders and those with higher credit exposure. Further, the share of borrowers taking loans from four or more lenders has increased to 5.8% as at the end of September from 3.6% three years ago, with the quarterly average ticket size of microfinance loan disbursals up 43% over this period to INR 50,430.  End

 

Reported by Kabir Sharma

Edited by Deepshikha Bhardwaj

 

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