The rate of growth in the personal loan portfolio of banks has dipped to 13.2 per cent to Rs 58,669 crore (Rs 586.69 billion) as on February 15, 2008, compared with 30.6 per cent in the same period last year, said the Reserve Bank of India in its 2007-08 report on Macroeconomic and Monetary Developments.
Major players such as ICICI Bank, Citifinancial and GE Money have refrained from growing their uncollaterised lending portfolio largely on account of deteriorating risk return ratio.
Stung by judicial intervention and regulatory raps following recent instances of excesses by recovery agents, private and foreign banks and non-banking finance companies exited the small ticket size personal loan segments (STPL). ICICI Bank, the country's second-largest bank, had stopped lending to borrowers from the sub-prime segment, while the biggest player in small loans, Citigroup, made its processes more stringent.
"We have tightened our credit screening in the unsecured loan segment based on the performance of the portfolio. Given the environment in the collection and risk reward ratio, we have decided to go slow," said Chanda Kochhar, joint managing director, ICICI Bank.
Despite the slowdown in the personal loan growth, outstandings on credit cards have risen by 62.42 per cent to Rs 6,502 crore (Rs 65.02 billion) as on February 15, 2008, as against Rs 4,003 crore (Rs 40.03 billion) on February 16, 2007. Banks are now encouraging consumers to buy products through a credit card as it is more cost-effective and a quicker means of payment.
ICICI Bank, in its consumer goods financing, has moved from the post-dated cheque system to the credit card payment mode. This has increased the ticket size spending on credit cards. "Overall, consumers are seeing credit cards as a convieneant mode of payment. The spends on cards will continue to see an increase," said the credit card head of a private sector bank.
Home loan portfolio of banks has also seen a slowdown in growth. The portfolio grew at 12 per cent to Rs 26,930 crore (Rs 269.30 billion) as on February 15, 2008, compared with 25.8 per cent growth (Rs 46,019 crore) in the same period last year.
"Rising interest rates have also affected the loan growth in the banking system. The home loan business has also taken a hit on account of the high property prices," said a senior banker. Bank credit growth to the real estate sector moderated to 26.7 per cent as on February 15, 2008, compared with a growth of 79 per cent in the same period last year.
Banks have clearly rebalanced their loan portfolio, which is evident from the rise in credit disbursements to the corporate sector. Disaggregated sectoral data up to February 15, 2008, showed that about 45 per cent of the incremental non-food credit year-on-year was absorbed by the industry compared with 36 per cent in the corresponding period of the previous year.
The expansion of incremental non-food credit to industry during this period was led by infrastructure (power, port and telecommunication), textile, food processing, iron and steel, engineering, chemicals, vehicles, construction and petroleum industries.
The infrastructure sector alone accounted for around 33 per cent of the incremental credit to the industry as against 21 per cent in the corresponding period of the previous year.
The agricultural sector absorbed around 9 per cent of the incremental non-food bank credit expansion as compared with 12 per cent in the corresponding period of the previous year.
The Monetary and Credit Policy 2007-2008
