Page 43 - BANKING FINANCE February 2024

ARTICLE

Unsecured Retail Credit Market in RBI Apprehension

India:- RBI has observed that, in the last 2 years, unsecured retail
credit has been an outlier segment as far as its growth rate
The retail credit industry has been growing at a phenomenal
is concerned. This category of loan has spiked 23 per cent
pace. As per estimates by CIBIL, in the last 5 years, the industry
against an overall credit growth of 12-14 per cent only.
has grown from Rs 51.33 Trillion in FY 2018-19 to Rs 88.01
Unsecured loans, though small in size, can pose systemic
Trillion in FY 2022-23 at a CAGR of above 14%. Given below is
risk if their growth remains unchecked. Hence, RBI has
the snapshot of the Retail lending portfolio as on 31/03/2023.
termed its regulatory intervention as "a pre-emptive
measure to bring certain prudence and to bring an end to
any sort of exuberance that may be exhibited by certain
lenders". In this regard, RBI Governor has underscored 4
key concern areas related to credit growth:
a) Sustainability of Growth - The RBI governor stressed
on the need for Banks and NBFCs to be mindful that
credit growth at the overall, sectoral and sub-sectoral
levels remains sustainable. To that end, banks and NBFCs
to ensure that the expansion of credit portfolio and
pricing should be appropriate to the risk involved, and
they should strive to further strengthen their asset
liability management.

b) Unsurious Pricing of loans by NBFC-MFIs - The RBI
Governor has pointed out to the fact that certain
NBFCs-MFIs appears to be enjoying "relatively high
Source: Trans Union CIBIL.
interest margins". As these financial entities often cater
Secured Retail loans (other than the business loans) to the marginalized clientele, they are expected to
comprises of the Housing loans, loans against FD, loans ensure that interest rates are transparent and not
against shares & bonds, vehicle loan, Loan against Property usurious. Affordability and repayment capacity of their
(LAP) and gold loans. The remaining portfolio of Personal borrowers to be kept in mind while fixation of interest
Loans, Consumer Durables Loans and Credit Card Receivables rates. This, in turn, will ensure that the assets do not
comprises of the unsecured retail credit market. Unsecured get stressed later.
Retail Credit segment has been growing the fastest in recent c) Over reliance on Analytics - While praising the digital
times as exhibited below: technologies and resultant innovative business models
YoY Growth in Outstanding Balance (June 2023) introduced by the collaboration between banks/NBFCs
and fintech, the governor cautioned regarding the over
Product Value reliance on "model-based lending through analytics".
Home Loan 15% Banks and NBFCs need to be careful in depending only
on "pre-set algorithms as assumptions based on which
LAP 20%
the models are operated". He stressed on the need
Auto Loan 23%
for periodic testing of the models and recalibrating the
Two-Wheeler Loan 31% models from time to time based on "changing contours
Personal Loan 27% of the financial ecosystem and fresh information". He
Credit Card 31% advised the Banks and NBFCs to be more watchful of
any information gaps in these models, which may cause
Consumer Durable Loan 24%
dilution of underwriting standards.
Source: Trans Union CIBIL CMI report October 2023 d) Bank -NBFC linkages - Commenting on the increase in

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