RBI Likely To Tighten Norms For Unsecured Lending Portfolios Of Banks: Report
Banks have been expanding their unsecured lending portfolio as the pandemic-induced stress began easing
The Reserve Bank of India (RBI) is looking to tighten scrutiny on the unsecured lending portfolios of banks amid the growing risk of potential defaults, citing banking sources news agency Reuters said. Unsecured loans, mostly personal loans and credit cards, do not carry any collateral and therefore pose a higher risk of default. These loans, however, are a big contributor to margins as they entail higher interest rates.
"Some action from the RBI on unsecured lending, credit cards, etc. could be seen," a senior source said. "Excessive growth is the first sign of potential delinquencies. We can expect the RBI to increase risk weights on unsecured personal loans and credit cards and, or, float a discussion paper on how to monitor the space more efficiently," said the head of credit card vertical at a private sector bank.
According to RBI norms, the risk weights or the capital that the banks need to set aside for every loan, on unsecured personal loans and outstanding on credit cards currently stands at 100 per cent and 125 per cent, respectively. "The RBI has enough options with it for stricter vigilance," said a senior official at a large private sector bank. "We are bracing for tighter norms, it's a matter of time," the executive said.
Banks have been expanding their unsecured lending portfolio as the pandemic-induced stress began easing. Banks' outstanding on credit cards stood at Rs 2 lakh crore as on April 21, up from Rs 1.54 lakh a year earlier, the latest RBI data showed.
Collection efficiencies have also deteriorated for these loan products, the report showed. The central bank has been asking lenders for data on the number of outstanding credit cards, value of transactions and collections every month for quite some time now, said a top official at the credit card unit of a public-sector bank.
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