MUMBAI: India's central bank has called on lenders to strengthen controls on small personal loans due to a significant increase in borrowing by low-income consumers. They may also consider implementing stricter measures to mitigate the risk of a surge in defaults, according to two individuals familiar with the matter.
While the bad loan ratio in India's banking sector is at a decade-low, estimated at 3.6% of assets by March 2024 by the central bank, Reserve Bank of India Governor Shaktikanta Das stated earlier this month that the central bank was closely monitoring specific categories of personal loans, without providing further details.
What concerns the regulator is the rapid growth of small personal loans, particularly those valued up to 10,000 rupees ($120), typically taken for three to four months, often for "lifestyle" expenditures, according to an individual familiar with the central bank's perspective.
Reuters was unable to ascertain when the regulator might implement stricter rules. Four individuals discussed the central bank's concerns with Reuters but declined to disclose their identities, as they are not authorized to speak to the media. The RBI did not respond to an email requesting comment from Reuters.
Delinquency rates for loans under 50,000 rupees were at 8.1% as of June 2023, according to data from credit bureau CRIF Highmark. This figure is significantly higher than the 1.4% bad loan ratio for all retail loans as of March 2023, as per the latest RBI data._ Reuters
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