HDFC Bank bucks the trend: Sees rise in unsecured loans

HDFC Bank is daring to go where others fear to tread. It is aggressively selling unsecured loans—like credit cards and personal loans—even as other banks are slowing down on these businesses. CNBC-TV18’s Gopika Gopakumar reports.

Since last year, personal loans have become a bad word in the books of many banks—but not for HDFC Bank. The Bank's unsecured loan book has grown by 8-10% in the second quarter of this year. This, at a time when other banks have stopped lending to this segment. But HDFC Bank says it is going to see faster growth in its personal loan book in the second half of this year.

Pralay Mondal, Country Head - Retail Assets, HDFC Bank, says, “If there is opportunity in the market, why not take it. I think we are that aggressive. On policy terms, we had actually tightened the policy during the bad economic cycle and we have started loosening it a bit right now.”

This strategy seems to have worked well for HDFC Bank. Over the last year, it has seen very few defaults in the personal loans segment and its non performing assets (NPAs) from personal loans has grown at a constant 2-3%, while those from credit cards at 10-11%—both less than half the industry average.

HDFC Bank says it has its conservative lending policy to thank.

“Our NPA is 2-3%—never a concern. UIT has remained the same though delinquencies coming down in credit cards. Credit cards constitute about less than 8% of total retail portfolio. From that perspective, I see no major risks. At system levels, I think NPAs are stabilizing,” Mondal adds.

Unsecured loans constitute just 20% of HDFC Bank's total assets. Growth in these loans would help HDFC Bank gain higher returns and also help improve margins. However, the Bank admits much of the credit growth this year will continue to depend on its secured credit business—like auto and home loans.