RBI cautions banks on unsecured personal loans, asks them to step up surveillance

He said certain components of personal loans are recording very high growth. “These are being closely monitored by the Reserve Bank for any signs of incipient stress,” Das said.

During his press conference, Das said that though all parameters, including gross non-performing assets (GNPAs), of banks and NBFCs look better as of June-end, RBI’s caution on personal loan growth is to sensitise lenders to be mindful of issues that can pose a challenge going forward.

“It is only to caution banks to strengthen their internal surveillance systems, watch the trends, and take whatever measures are required,” Das said.

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RBI Deputy Governor J Swaminathan said year-on-year growth in retail credit over the last couple of years has been close to 30 per cent in most institutions and unsecured retail credit has grown by 23 per cent on an average. In comparison with a 12-14 per cent credit growth in the other segments, growth in unsecured retail credit looks to be an outlier.

“As a supervisor, it is our intention to inform the banks that this is an outlier level of growth, so strengthen your internal surveillance mechanisms, so that any risk that may likely be building up is handled upfront rather than coming to grief at a later time,” Swaminathan told reporters.

Credit card outstanding has shot up by 30 per cent to Rs 2.17 lakh crore in a year. Other personal loans (excluding home, vehicle, credit card and education loans) soared by 26 per cent to Rs 12.20 lakh crore on a year-on-year basis. These are unsecured loans extended by banks based on income and rating of the customer. As interest rates on such loans are very high, borrowers will have to shell out a hefty amount as monthly repayments.

Defaults in the credit card segment are rising. Gross non-performing assets (GNPA) in the credit card segment of banks rose by Rs 951 crore to Rs 4,073 crore in the fiscal ended March 2023 from Rs 3,122 crore in the year ended March 2022, according to the latest data obtained from the RBI under the Right to Information (RTI) Act.

As of December 2022, gross NPAs in the segment stood at Rs 3,887 crore, the RBI had said in a reply to an RTI filed earlier by The Indian Express. This means card holders defaulted on another Rs 186 crore in the three months ended March 2023.

According to the recently released Financial Stability Report of the RBI, while there was an overall improvement in asset quality in respect of personal loans, impairments in the credit card receivables segment rose marginally in fiscal year 2023. During the previous fiscal year, the banking system’s gross NPA ratio in credit card receivables stood at 2.02 per cent, the RBI said in the RTI reply.

The FSR report showed that public sector lenders’ gross NPA in the credit card segment was 18 per cent while private sector banks reported a GNPA of 1.9 per cent in FY2023. Foreign banks’ credit card gross NPA ratio was 1.8 per cent during the previous fiscal. Bankers say stress in credit card loans is mainly seen in the low-ticket segment, that is, below Rs 50,000