The Reserve Bank of India (RBI) has directed lenders to tighten controls on tiny personal loans or small ticket loans following a spike in borrowing by low-income consumers. It may introduce stricter measures to keep a tab on risks due to the rise in cases of defaults.
Although bad loans in the banking sector continue to be at a decade-low, estimated at 3.6% of assets by March 2024 by the apex bank, it was monitoring a few categories of personal loans.
However, the central bank remains concerned over a rise in tiny personal loans, particularly loans of up to Rs 10,000 taken for a period of three to four months, often for ‘lifestyle’ spending.
The delinquency rate for loans less than Rs 50,000 stood at 8.1% as of June 2023, as per data from credit bureau CRIF Highmark. As per the latest RBI data, the number is well above the 1.4% bad loan ratio related to all retail loans as of March 2023.
The upward movement in small loans has been quite sharp, outpacing overall bank credit growth of about 15% in the past year. As per an estimate, over Rs 200 billion worth of Rs 10,000 loans were disbursed in 2022-23; these numbers were more than twice the amount of such loans disbursed in 2019-20.
The total value of loans less than Rs 10,000 surged to 37% in the financial year ending March 31, 2023, while loans of Rs 10,000-50,000 stood at 48%, as per the CRIF data. As per the RBI data, the rise in leverage pushed the country’s net household financial savings to a 50-year low of 5.1% of gross domestic product in the year ended March 31, 2023.
Non-bank financial companies (NBFCs), including digital lenders, are the largest lenders to this particular segment. However, banks could also be exposed, considering funds are sourced from them.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.
