The Hindu Business Line : ‘Problem still manageable’

Mr Karthik Srinivasan, Head of Financial Sector Ratings, ICRA, said, “The personal loan business may have seen some slowdown because of a rise in delinquencies as well as tightening regulations. There may have been some slowdown in collections, and recoveries were an issue for a month or two. Some banks may have temporarily exited small ticket loans, but there are some other players who are also looking at expanding or increasing their presence in the personal loan segment.”

NPAs to rise

Rating agency Crisil brought out a recent study in which it estimates gross non-performing assets (NPAs) in retail loans to increase to 4 per cent over the next two years from 2.7 per cent as of March 2007-end.

The study noted that delinquencies in the personal loans (unsecured loans category), was expected to be 8 per cent to 13 per cent as against past levels of 5 per cent to 8 per cent.

Asset quality

Crisil’s Head of Corporate and Government Ratings, Mr Tarun Bhatia, said, “Banks have taken a cautious approach now. Many of them have temporarily exited small ticket loans, partially because demand for housing and car loans has gone up. The franchise risk is very high because of recovery related issues. Banks in order to maintain asset quality are temporarily staying away from these small loans. They will come back when the economy gets better, probably anywhere between 6 months and 2 years. This is the first product for a large set of customers after which there are immense cross-sell opportunities for banks.”

Asked about the size of the problem, Mr Bhatia said, “Small ticket loans constitute a very small component of the total retail portfolio (probably around 10 per cent) of banks. And since retail loans themselves constitute only about 25 per cent of total loans in the system, the total impact is relatively small.”

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