Page 42 - BANKING FINANCE February 2024

ARTICLE

Governor Shri Shaktikanta Das during his interaction with any kind of personal expense like weddings, travel,
the heads of major commercial banks and large NBFCs, medical emergencies, etc. There are no stipulations
flagged the issue of high growth in certain segments of from the lenders side regarding the end use of funds.
consumer credit and an increase in dependency of NBFCs
b) Overdrafts on Salary Accounts - These are short term
on bank borrowings. The same was followed by the unsecured loans given to individuals maintaining salary
November 16 notification of RBI wherein the Risk Weights accounts with the lender. These loans are designed to
(RW) on consumer credit exposure of commercial banks was
tide over temporary cash flow mismatches of the salary
enhanced by 25 % (from 100% to 125%). However, Housing holder. The application and approval process is quite
Loan, Education Loans, Vehicle Loans and Loans secured by easy. The loan eligibility is often quantified in terms of
Gold and Gold Jewellery were kept out of the ambit of this
the number of times of monthly salary of the applicant.
enhanced RW. Risk Weights on Credit Card receivables of
Many fin techs and NBFCs are also market this product
SCB's, which till now attracted a RW of 125%, were also as Pay day Loans.
enhanced to 150%.
c) Credit Card Receivables - Credit card holders are
provided with credit limits and cash withdrawal limits.
Post this development, the banking fraternity has been
Card holders can make purchases from physical stores
divided in their understanding of the ground realities. On
or make e-commerce transactions up to the credit limit
one hand, there is a school of thought which feels that the
set by the issuer. Grace periods of 50-60 days are given
recent surges in the unsecured retail lending in India is
to the borrower to repay the amount. Beyond that
backed by solid macros. Whereas others feel that the more
interest is charged on the outstanding amount.
than expected upsurge is a sign of incipient stress and might
pose systemic risk, if not dealt with an iron hand. d) Consumer Durable Loans - It is a category of
consumption loan wherein the proceeds are used for
Against this backdrop, this article attempts to capture the purchase of some consumer durable goods, like
broad trends in the unsecured retail lending market of India. Household appliances and electronic gadgets etc. Loan
to the extent of 100% of price of the article is provided.
What Constitutes Unsecured Retail In most cases the repayment is done in installments and
the borrower can repay over a period.
Lending?
Banks and Financial institutions lend money to individual Unsecured retail loans are important in providing timely
borrowers to cater to diverse needs. In some cases, the financial support to individuals and provide borrowers with
financial institutions obtain an underlying security for unmatched flexibility in terms of the end use of funds and
securing the loan. These types of loans are called secured repayment schedule, ease of assessment and simplified
loans. However, in many cases, borrowers are not required documentation.
to provide any collateral security to the bank to avail loans.
Loans are disbursed to the borrower primarily based on the
credit history of the borrower and the lenders assessment
of the ability of the prospective borrower to repay the loan.
These categories of loans are referred to as Unsecured
Loans. Credit worthiness, income and the employment
history of the individual plays a crucial role in the assessment
of such loans.

Some of the most common types of Unsecured
Retail Loans in India are as follows:
a) Personal Loans - As the name suggests, proceeds of
this loan can be utilized by the borrower for incurring

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