Banks see sharp growth in unsecured loans even after RBI caution

Expect growth to continue in the unsecured segment, which includes microfinance, credit cards, personal loans and some retail loans, bank officials indicated.

Top banks including HDFC Bank, ICICI Bank, and Kotak Mahindra Bank increased their unsecured loan portfolios by as much as 30 percent in the July-September quarter, a Moneycontrol analysis of their earnings showed.
They expect growth to continue in the unsecured segment, which includes microfinance, credit cards, personal loans and some retail loans, bank officials indicated.

The growth comes in the backdrop of concerns flagged by the Reserve Bank of India over the surge in such loans and a reminder to strengthen their surveillance mechanisms.

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HDFC Bank, the country’s largest private sector lender, reported a growth of 15.5 percent in its personal loans to Rs 1.78 lakh crore from Rs 1.54 lakh crore in the corresponding quarter last year.

ICICI Bank’s personal loan portfolio grew 40 percent to Rs 1.04 lakh crore from Rs 74,355 crore. The lender’s credit card portfolio stood at Rs 43,230 crore in the July-September quarter compared with Rs 33,394 crore last year, a growth of 29.5 percent.

Kotak Mahindra Bank’s unsecured portfolio stood at Rs 38,311 crore in the July-September quarter compared with Rs 25,580 crore a year earlier, registering growth of 49.76 percent.

IndusInd Bank’s microfinance portfolio grew by 16 percent to Rs 34,363 crore in Q2 of FY24 from Rs 29,617 crore a year earlier. The bank’s credit card business increased 33 percent to Rs 9,462 crore. Other retail loans climbed 64 percent to Rs 20,879 crore.

RBL Bank’s retail portfolio, which includes credit card and microfinance, stood at Rs 44,092 crore versus Rs 36,686 last year, an increase of 35 percent.

RBI’s caution

RBI governor Shaktikanta Das has flagged concerns over the surge in unsecured lending by banks.

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“Banks and NBFCs would be well advised to strengthen their internal surveillance mechanisms, address the build-up of risks, if any, and institute suitable safeguards in their own interest,” Das said at a press conference after the Monetary Policy Committee meeting earlier in October.

Das said that though all parameters, including gross non-performing assets of banks and non-banking finance companies, looked better as of April-June, the central bank’s caution on personal loan growth was only to sensitise lenders to be mindful of issues that can pose a challenge.

HDFC Bank chief financial officer Srinivasan Vaidyanathan said the bank plans to increase its portfolio by 15 percent to 20 percent in the coming quarters.

“We have an enormous pre-approved base and the demand is quite good. Currently, we have about 15 percent YoY growth rate and going ahead we expect that it to be in between high teens to 20 percent,” Vaidyanathan said on a post-results call with analysts.

Anindya Banerjee, CFO of ICICI Bank, told analysts: “We are tracking the unsecured segment from the past few quarters. We have minimal presence in small ticket size loans.”

Banerjee said the bank’s focus in unsecured lending will be on existing customers.

“We will work on cross-selling with existing customers and those who have a credit score above a certain level,” Banerjee said.

Comfortable growth

For Kotak Bank, CFO Jaimin Bhatt said the bank remained comfortable in increasing the unsecured portfolio.

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“We are comfortable in growth and it is on track. We are looking at growing in mid-teens,” Bhatt said at a post-results press conference.

IndusInd Bank managing director Sumant Kathpalia said the bank already has a big exposure in microfinance.

“Further, we will limit the credit card business and look at targeting our other unsecured business exposure at 5 percent,” Kathpalia said at a post-results press conference.

R Subramaniakumar, RBL Bank MD, said there is no stress in its retail, microfinance and credit card business.

“Our business and collection is on track. We will continue our aggressive growth in retail and credit card portfolio,” Subramaniakumar said at a post-results press conference.