A year since risk weight hikes, lenders still cautious on unsecured credit growth

Over a year since the Reserve Bank of India (RBI) hiked risk weights on unsecured credit segments such as credit cards and personal loans, lenders remain cautious about expanding their unsecured credit portfolios due to concerns over over-leveraging of customers, say senior bankers.

“Personal loans and credit card together have shown delinquencies across the banking sector. Everyone has faced it and tightened underwriting standards. We have seen behaviour where person is taking loan from more than one institution without having repayment capacity,” said Prashant Kumar, MD & CEO, Yes Bank.

The same trend, he says, is being seen in the microfinance sector where loans are being taken from 3-4 different MFIs. “Whenever you borrow more than you can repay, there will be an issue…growth in unsecured and credit card has already come down and going ahead will be under stress unless things improve,” he said.

Focus on salaried class

Public sector banks (PSBs) too are going slow on growing credit card and personal loan book, and are extending such loans only to customers who have high turnover and have a salary account with the bank.

“We are not very aggressive on unsecured segment. We are having around ₹8,000 crore of personal loans, which is close to 1.6 per cent of overall loans. We are giving unsecured loans to customers who have salary account with us,” said SL Jain, MD & CEO, Indian Bank.

“Likewise, in the credit card side also we are not aggressively growing, we are largely with our own customers. The outstanding credit card dues have increased,” he said.

Credit cost to remain high

According to Nitin Aggarwal, Head-BFSI, Institutional Equities at Motilal Oswal Financial Services, credit card trends have been divergent across banks with large private ones such as HDFC Bank, ICICI Bank and Axis Bank seeing some uptick in stress, but it is still manageable.

“But when you look at some mid-size names like RBL Bank, AU SFB and SBI cards, they are reporting high credit cost and overall trends continue to remain weak for industry and you will see elevated credit cost in Q3,” Aggarwal said.

SBI Card, India’s largest pure-play credit card issuer, which crossed the significant milestone of two crore cards in force earlier this month, will also continue being under stress. Aggarwal said the company’s credit cost was around 9 per cent in Q2FY25 and the number will likely remain elevated in current quarter also. Credit cost is the capital set aside for potential bad loans.