Personal Loan business is growing aggressively

Market for personal loan in India is growing and has become competitive with the coming of foreign banks and non banking finance companies entering this space. Banks such as ICICI Bank, HDFC Bank, Citibank, Standard Chartered Bank, Centurion Bank of Punjab and non banking finance companies such as GE, DBS Cholamandalam, and Fullerton India among others are aggressively marketing personal loans.

With the growth the level of delinquency has gone up by 10-20 per cent. This rise in the delinquency has led the banks to tighten their due diligence of marketing agents and also reviewing recovery strategies.

The RBI data shows the growth of 23 percent in the personal loans year-on-year to Rs 87,944 crore as on May 25, 2007.

Banks and NBFCs are working on unsecured loans products as the yield in this business is high which covers for any defaults. There is a variation in the interest rate on personal loans from 14 percent to 30 per cent.

Neeraj Swaroop, CEO, Standard Chartered India said, “We see growth in the personal loans business. In the unsecured space, we have better ability and hence, we are aggressively pursuing the personal loans business.”

But there are some banks like IndusInd Bank, a private sector bank who are opting out of the personal loan business. Bhaskar Ghose, managing director, InduInd Bank said, “The yield in unsecured loans is higher. However, whenever there is an economic downturn or the customer faces an economic crisis, individuals tend to default on these loans. Hence, on a standalone basis we have stopped giving personal loans.”

IndusInd Bank will give personal loans only to customers with corporate salary accounts as the number of defaulters is rising. Ghose said, “This is the safest way to do the business as the bank deducts the installment from the salary account and if the employee decides to quit the organization, then the amount is deducted from the final settlement.”

According to bank’s loan data, 58 per cent accounts for vehicle finance loans, 13 per cent account for other retail loans and balance is wholesale (corporate) loans.