Big private sector lenders are going aggressive in the ramp-up of their personal loan portfolios, an analysis by Moneycontrol showed. Banks like ICICI Bank, Axis Bank and Kotak Mahindra Bank have increased their unsecured lending business during the October-December 2022 quarter in a bid to grab a bigger pie of the market.
For instance, ICICI Bank witnessed 42 percent y-o-y (YoY) growth in personal loans from Rs 56,900 crore in 2021 to Rs 80,903 crore in 2022. Axis Bank, ICICI Bank’s close rival, grew the personal loan portfolio by 18 percent during the period.
Also, Kotak Mahindra Bank’s housing loan portfolio jumped 29 percent from Rs 68,871 crore in 2021 to Rs 89,112 crore in 2022.
Other than big banks, smaller private sector lenders like South Indian Bank and DCB Bank also grew their unsecured loans in a big way. South Indian Bank’s personal loan book grew by 155 percent YoY and gold loan lending increased by 32 percent.
On the other hand, DCB Bank’s personal banking portfolio on YoY basis grew from Rs 823 crore to Rs 987 crore.
Tight competition ahead
Going ahead, experts said unsecured lending business could see tough competition between banks, non-banking financial companies (NBFCs) and fintechs, with banks having boosted their business in the sector.
“Competition from banks will remain intense and the rising interest rate environment will exert pressure on margins and limit competitive ability, especially in the largest traditional segments of home loans and new vehicle finance,” said Gurpreet Chhatwal, Managing Director (MD), CRISIL Ratings.
The sector, which forms the major business portion for NBFCs and fintech companies, could see increasing participation from banks, experts said.
Typically, personal loans for cars, houses, etc. are part of the unsecured lending business.
The demand for personal loans is on the rise, bankers said, adding that the trend has been picking up over the past few quarters. Looking at this, banks do not want to miss out on the opportunity to lend more in the unsecured lending sector.
Murali Ramakrishnan, MD and Chief Executive Officer (CEO), South Indian Bank, said that his bank has been planning to work more on housing and car loans.
“We want to focus more on retail lending as we’ve seen the rising demand. Our personal loan growth has been growing since the past few quarters, and we expect more growth ahead,” Ramakrishnan said.
Moneycontrol had previously reported that more private banks are venturing into unsecured lending due to significant margins in the sector.
Earlier in the quarter ending June 2022, private banks like Kotak Mahindra Bank, Axis Bank, and ICICI Bank increased their disbursement of unsecured loans. During the pandemic, banks had excessively tightened their disbursement policy, but with the economy looking up, banks gradually eased up, and disbursed more unsecured loans.
A similar, but more aggressive, pattern can be observed after the December 2022 quarterly results where banks have started to tighten their competition with NBFCs and fintechs in unsecured lending.
Earlier, in an exclusive interview with Moneycontrol, George Alexander Muthoot, MD and CEO of gold-loan-focused NBFC, Muthoot Finance, said that banks will give tough competition in the gold loan sector.
“Some banks and NBFCs were aggressively moving towards the gold loan sector, but in the last few months, many realised that gold loan is a very operationally challenging business
In the short term, NBFCs focused on gold loans could face some challenges, but on a long-term basis, the focused NBFCs would continue to grow,” Muthoot said.
Similarly, other fintech and NBFC players are expecting banks to not affect the unsecured lending sector and are expecting tougher competition for some time.
“NBFCs serve a niche market of individuals and/or businesses who do not meet the strict credit requirements of banks, and thus, have a competitive advantage owing to their streamlined lending processes, flexible lending criteria, and better understanding of the needs of their customers,” said Anil Pinapala, CEO, Vivifi India, a fintech NBFC.
