Why RBI Has Turned Cautious On Unsecured Credit
The quality of incremental credit has improved, with the share of lower-rated borrowers declining at the overall industry level and bank group level, it said.
The Reserve Bank of India on Thursday explained the reason behind its cautious stance against unsecured retail credit.
In the latest edition of its half-yearly financial stability report, the banking regulator highlighted that the quality of incremental credit has improved, with the share of lower-rated borrowers declining at the overall industry level, as well as at the bank group level.
Similarly, portfolio performance continues to improve, with declining levels of delinquencies across lender groups, the RBI said in the report.
While delinquencies are low, there are signs of risk build up in the consumer credit segment, the regulator said. In the report, RBI highlighted some of these signs.
More downgrades than upgrades were visible in the risk profile of personal and consumer loans.
Relatively high vintage delinquency in personal loans indicates declining underwriting standards. High vintage delinquency is defined as a share of loan accounts turning delinquent at any point within 12 months of origination.
Around 43% of all consumption loan borrowers had at least three live loan accounts at the time of origination.
More than 30% of these consumption loan borrowers had borrowed more than three loans in the past six months.
7.3% of customers availing a personal loan below Rs 50,000 had at least one overdue personal loan.
In November, the regulator announced that it will raise the risk weights for unsecured retail loans extended by banks and non-bank lenders. In its Trend and Progress of Banking In India report released on Wednesday, RBI said that these guidelines were "pre-emptive" in nature.
