RBI raises concern over higher delinquency levels in sub-Rs 50,000 personal loans

The RBI said in the consumer credit segment more than half of the borrowers have three live loans running at the same time.

At present, below Rs 50,000 personal loans form 0.4 per cent of total outstanding retail loans of financial institutions. As of April 19, 2024, total bank lending to personal loans stood at Rs 53.62 lakh crore.

The Reserve Bank of India (RBI) on Thursday expressed concerns over the consumer credit segment, particularly in sub Rs 50,000 personal loan segment, where delinquency levels remain high.

The RBI said in the consumer credit segment more than half of the borrowers have three live loans running at the same time.

“In the consumer credit segment, there are a few concerns that require close monitoring. First, delinquency levels among borrowers with personal loans below Rs 50,000 remain high,” the RBI’s Financial Stability Report (FSR) said.

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In particular, non-banking financial companies (NBFC)-fintech lenders, which have the highest share in sanctioned and outstanding amounts in below Rs 50,000 personal loans, also have the second highest delinquency levels, only below that of small finance banks, the report said.

Vintage delinquency, which is a measure of slippage, remains relatively high in personal loans at 8.2 per cent, the FSR report said. Vintage delinquency is defined as the percentage of accounts that have anytime become delinquent (90+ days past due) within twelve months of origination and is a commonly used industry metric to assess the efficiency of the loan underwriting process.

The RBI report said little more than a half of the borrowers in this segment have three live loans at the time of origination and more than one-third of the borrowers have availed more than three loans in the last six months.

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“Little more than a half of the borrowers in this (consumer credit) segment have three live loans at the time of origination and more than one-third of the borrowers have availed more than three loans in the last six months,” the report said.

It could be noted that in November 2023, the RBI had increased risk weight on the exposure of banks towards consumer credit, credit card receivables and non-banking finance companies (NBFCs) by 25 per cent up to 150 per cent. The move was aimed to address build-up of any risks in these segments.

Risk weight refers to the capital banks keep aside as provisioning to cover any loan defaults.

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