Public sector banks to go easy on personal loans

Public sector banks are going easy on personal loans, good news for people are in need of money can apply for personal loan. Earlier PSBs were abstaining from giving personal loans but now they are loosening the strings on personal loans.

Mr J.P. Dua, Executive Director, Allahabad Bank, told Business Line, “Personal loans are again becoming a significant segment of retail portfolio. In fact, it is time the public sector banks occupied the space vacated by private sector majors such as ICICI Bank”.

On the other hand, till last year private banks, were going aggressive on personal loans lending but now they are getting cautious due to high default rate. They are not focusing much on retail.

For instance ICICI Bank largest private sector bank retail portfolio has decreased to Rs 86,400 crore by September 2009 as against Rs 1,22,500 crore a year ago.

Mr R.S. Reddy, Chairman and Managing Director, Andhra Bank, informed, “In our retail growth, personal loans too are a part. We are offering them along with other products such as gold loans.”

A senior official of State Bank of Hyderabad pointed out the PSBs are charging relatively low interest in order to attract loan seekers.

He stated, “Generally, the interest on personal loans is about 200 basis points more than prime lending rate. This is much lower that charged by private banks and non-banking finance companies”.

However private banks and NBFCs are charging between 16 and 24 per cent, for the loan amount ranging between Rs 50,000 and Rs 2 lakh which is to be repaid in 24-36 months.

A senior SBI official informed, personal loan is being looked as a ‘good’ segment and it is not reluctant’ to expand advances.

Also low credit off take in other sectors (such as corporate lending) is responsible for increased interest in personal loans.

As per RBI data, this fiscal (till October) the bank credit had grown by 4.5 per cent as compared to 12.1 per cent last year. While on a year-on-year basis, it had grown 9.5 per cent as against 28 per cent last year.

The main aim is to tap existing customers. Mr Dua said, “This approach keeps our portfolio healthy.”

According to Mr Reddy, “Catering to the needs of our customers alone can be generating good business”.

SBI country’s largest public sector will be considering the loan on a case-to-case basis for salaried categories even though they are not bank’s customers.

During the diligence process some of the other parameters that are taken into consideration are clean credit history, salary credit into a bank account and high disposable income.