Mumbai (Reuters) – The Reserve Bank of India (RBI) is not currently considering changes to existing norms governing banks’ unsecured lending portfolios, as there is no sector-wide stress buildup apparent, according to sources familiar with the matter.
Indian banks have experienced a substantial increase in unsecured loans, primarily personal loans and credit cards, which have outpaced overall bank credit growth of approximately 15% over the past year, drawing the RBI’s attention. Latest data from the RBI indicates that banks’ outstanding receipts from credit cards grew to INR 2.18 trillion ($26.26 billion) as of August 25, up from INR 1.68 trillion a year earlier. Outstanding personal loans also rose by 26% during the same period.
One source, familiar with the RBI’s perspective, stated, “The problem is not systemic at this point and is restricted to select four-five banks.” However, they did not specify which banks were involved. “The RBI has already cautioned these banks and has strengthened its vigilance around unsecured loans, but increasing risk weights on unsecured lending may not be necessary at this point.”
The sources requested anonymity as they were not authorized to speak to the media. The RBI did not respond to a Reuters email seeking comment.
According to RBI regulations, the risk weights – or the capital banks must set aside for every loan – for unsecured personal loans and outstanding credit cards currently stand at 100% and 125%, respectively.
The second source indicated that “the deployment of overall bank credit to credit cards and personal loans compared to the total proportion of loans in the system is not very alarming at this stage for the RBI to increase risk weights.”
Earlier this month, RBI Governor Shaktikanta Das stated that the central bank is closely monitoring some fast-growing personal loan categories for signs of nascent stress.
Subsequently, Reuters reported that the RBI is particularly concerned about the surge in tiny personal loans of up to INR 10,000, taken for three to four months.
Analysts have also expressed caution about the rising risks of banks’ unsecured retail loans turning sour. UBS downgraded Indian banks this month, citing increasing default risks in retail unsecured loans.
