Bank and NBFC personal loans increased to Rs 51.7 trillion in the previous six years

The amount of personal loan credit provided by banks and NBFCs has almost quadrupled to Rs 51.7 trillion in the last six years, exhibiting remarkable bank and nbfc personal loans increased to rs 51 7 trillion in the previous six yea

According to a research by rating agency CareEdge, this constituted 30.3% of the total loan book as of March 31, 2023, as opposed to Rs 18.6 trillion, or 21.5%, of the total loan book as of March 31, 2017.

Notably, the survey revealed that the growth rate of personal loan books, which often represent loans for consumption, is almost twice as high as the growth rate of corporate loans, which makes up the remainder of the banking sector’s lending.

From 2017 to 2023, the credit growth for personal loans was over 1.5 times higher than the credit growth for banks and nonbank financial institutions combined.

According to the research, unsecured personal loans, which would account for over one-third of all personal loan sector loans at Rs 41 trillion as of March 31, 2023, exceeded the overall increase of the personal loan book under the personal credit category.

The emergence of Fintech and digital platforms has further enabled this trend and raised the amount of originations.

“Numeric changes, economic formalization, increased purchasing power, the development and prominence of FinTechs, the adoption of digital payment systems, the influence of India stack and information collateral, the wider coverage of credit bureaus, and the widespread availability of the Internet and broadband and feature phones are just a few of the factors that have contributed to the significant increase in demand for unsecured personal loans,” the CareEdge report stated.

In FY23, loans for NBFCs with ticket sizes less than Rs 1 lakh accounted for more than 85% of total loan originations. The bulk of originations volume are loans with ticket sizes less than Rs 50,000, which have seen a growth in origination value of more than two times over the past two fiscal years that concluded in March 2023.

According to the survey, one of the main factors contributing to the rise in demand for unsecured personal loans, especially in consumption-driven growth patterns, is the way that consumer behavior is changing.

There has been a noticeable change in the attitudes of the younger generation, who are more accepting of the concept of borrowing for consumption than they were ten years ago.

The RBI has determined that NBFCs’ consumer credit exposure, both new and existing, classified as retail loans, with the exception of loans for homes, education, vehicles, loans secured by gold jewelry, and microfinance/SHG loans, would be subject to a 125% risk weight. Loan exposures made by NBFCs often result in a 100% risk weight.

Additionally, the Central Bank declared that, in all circumstances where the current risk weight as per the external rating of NBFCs is less than 100%, it would raise the risk weights on SCB exposures to NBFCs by 25 percent points above the risk weight associated with the present external rating.


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