Key Points
After warning the banks, the Reserve Bank of India (RBI) has now slammed the brakes on the unbridled growth in consumer loans that lately expanded faster than less risky lending assets, directing banks to set aside more capital and establish board-monitored processes on such loans to prevent risk escalation in the financial system...
However, the new rules are not applicable to housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery, the RBI said.. RBI Governor Shaktikanta Das, in his monetary policy statement last month, had asked banks to pay more attention to the unsecured lending segment, flagging the risks to financial stability...
Even though delinquencies on small-ticket personal loans have a marginal impact on the personal loan portfolio, these need to be monitored closely, especially because consumers may prioritize other payment obligations ahead of personal loan payments, which in turn may be a wider indicator of financial stress, the credit bureau report said...
A recent report by Swiss investment bank UBS said public sector banks are likely to have higher defaults than their private counterparts, as credit losses from unsecured retail loans could increase 50-200 basis points in 2024-25..
"State-owned banks likely had 52% of their outstanding personal loans to borrowers with credit scores below 644 (medium to high-risk borrowers), while NBFCs had 49% and large private banks about 31% in June 2023," the UBS report said..
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