The quality of fresh unsecured loans of private and foreign banks are getting better, as these lenders, armed with credit information on borrowers, are choosing to lend more selectively.
While most of these banks are once again betting big on personal loans and credit cards, despite fears of slow economic growth, the health of their unsecured assets are not so likely to be stressed.
"The quality of our cards' portfolio has improved tremendously. The credit information infrastructure is significantly superior now than five years ago. Banks have learnt their lessons from the past crisis and are lending more rationally," Jairam Sridharan, head of consumer lending and payments at Axis Bank, told Business Standard.
The country's third largest private bank, it has a portfolio of 650,000-700,000 cards. It is looking to offer these to mostly people with a current relationship with it but also has ambitious growth plans in this business.
"The share of existing clients is upwards of 90 per cent in the fresh sourcing for our cards business. The bank has a customer base of 12 million. Hence, the opportunity is huge," Sridharan said.
Citibank is also reviving its unsecured lending operations in India. The bank had cut unsecured lending after the earlier economic crisis. According to senior officials, the foreign lender has now decided to give personal loans and credit cards to the affluent section of society.
ICICI Bank, which had been shrinking the share of its unsecured loans since the 2008 economic crisis, has also started growing this business. "We are very selectively offering these products, mostly to clients with a long-standing relationship," said Chanda Kochhar, managing director and chief executive officer. The share of unsecured loans is currently 2.1 per cent of the credit portfolio.
India's second largest private sector lender, HDFC Bank, has come out with even more aggressive plans to scale up unsecured loans. The bank has moved away from its traditional practice of offering credit cards to only existing clients. The share of clients banking for the first time with HDFC and who've been offered a credit card has increased to 25 per cent now from 10 per cent a year earlier.
"As we go to super-premium clients, we will look more for external customers. This will also help us to acquire these customers for other businesses. The quality of the incremental business in our unsecured loans is, in fact, superior to the existing portfolio," Pralay Mondal, country head, retail assets and credit cards, said in a recent interview with Business Standard.
IndusInd Bank, which acquired Deutsche Bank's credit card business earlier this year, aims to grow the portfolio four-fold in the next three years. "Unsecured loans have high risks but also high returns. The last few years showed the risk was higher than the reward. I think, now the bad loans have been cleaned out," said Romesh Sobti, managing director and chief executive.
Hongkong and Shanghai Banking Corporation (HSBC) is also looking to re-enter the unsecured lending space in this country. "We are selectively growing our unsecured loans," said Stuart A Davis, chief executive officer of HSBC in India.
