Higher The Exposure To Unsecured Book, Greater The Impact: Axis Bank's Sumit Bali
The personal loan market should witness an uptick of around 50 to 75 basis points, he said.
The higher the exposure to an unsecured book for a bank, the greater the impact, according to Sumit Bali, head of retail lending at Axis Bank Ltd.
The comments come after the Reserve Bank of India made consumer lending costlier for banks and non-bank lenders and also asked them to limit exposure to such loans amid growing risk concerns.
"(The) RBI has been voicing concern about the high growth rate and higher delinquencies on the unsecured loan, so this is something that is in line to control the growth in that segment," Bali told BQ Prime in an interview.
Sumit Bali, head of retail lending at Axis Bank (Source: BQ Prime)
The capital consumption for the existing book will go up by about 25% incrementally, according to the group executive.
"For the NBFCs, it's a bit of a double whammy because not only will they have to increase the lending rate as the capital requirement for them goes up, but the pricing for them on the loans from the bank to the NBFC will also see an uptick because even their 25% risk weightage has been increased from the current level," he said.
The personal loan market should witness an uptick of around 50 to 75 basis points. "It could vary from institution to institution, but I think that's the ballpark number that will increase. And, therefore, the expectation is that it will also slow down the growth," Bali said.
The regulators possess a comprehensive understanding of the overall market, he said. Their ability to pinpoint pressure points and areas of concern enables them to take informed and strategic actions, Bali said. "Therefore, if you see the impact on banks, vis-à-vis the NBFC, it is limited; for an NBFC, it is higher."
Impact On Axis Bank
Axis Bank's overall exposure to retail unsecured loans is about 21%. The exposure on the unsecured has been a "bit lower", Bali said.
The stress is higher in the unsecured book of less than Rs 50,000 ticket size, and that is not where Axis Bank operates, he said.
"That book for us is virtually nil. Overall, for us, the delinquencies have been following a longer-term trend and have been in control, in line with our risk appetite. We haven't seen a change in the risk profile of the customer or the portfolio delicacy numbers," he said.
The cost of funds for non-banking financial companies is anticipated to increase by approximately 40 to 50 basis points on an incremental basis, Bali said. "The current book also has a reset clause, so we'll have to see through that as to how we can transmit for the existing book. But for fresh loans, certainly, the cost of NBFCs will go up."
RBI Raising Risk Weights On Consumer Loans
Consumer loans will attract a credit risk weight of 125% as compared with 100% earlier, the regulator said in a circular issued on its website on Thursday. For the NBFCs, too, consumer loans will attract a risk weight of 125%.
This effectively means that banks will have to set aside Rs 125 in provisions for every Rs 100 of consumer credit. Such lending includes personal loans, but excludes home, education, vehicle, gold and microfinance loans.
