Chart of the Day: State-run banks chase large-size unsecured personal loans

Unsecured personal loans have been a lucrative segment that most banks and non-bank lenders have pursued. But the approach of banks to unsecured loans has been different.

Data from Crif High Mark shows that public sector banks have pursued large ticket unsecured personal loans rather than aggressively increasing the volume. As the chart shows, public sector lenders accounted for 39 percent of the unsecured personal loans originated in FY22 by value but only 7.8 percent by volume.

Private sector banks, on the other hand, seem to be playing a more balanced game. Private sector lenders accounted for 37.5 percent of personal loans by value and 17.6 percent by volume.

Unsecured personal loans are seen as high risk compared with other retail loans. Large-ticket unsecured personal loans can cause a bigger hit on the banks’ asset quality during times of stress.

The comfort for public sector banks to lend personal loans of an average of Rs 4 lakh and above comes from the profile of borrowers. Public sector lenders typically lend to salaried individuals, and in many instances such individuals are employed in public sector enterprises. The risk profile of such borrowers is low even though the nature of the loan is riskier.

It is, therefore, pertinent to note that public sector banks have a higher portion of their personal loans turning bad compared with private sector peers and even non-bank lenders.