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Mr J.P. Dua

Mr R.S. Reddy

G. Naga Sridhar

Hyderabad, Nov. 17 If you are in need of money, now may be the right time to apply for personal loan from a public sector bank (PSB). After keeping purse strings tight for quite some time, banks are now turning positive on personal loans.

“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,” Mr J.P. Dua, Executive Director, Allahabad Bank, told Business Line.

Private banks, that were aggressive on personal loans till last year, are now hesitant due to high default rate. They are also reducing exposure to retail.

For instance, ICICI Bank’s retail portfolio decreased to Rs 86,400 crore by September 2009 compared with Rs 1,22,500 crore a year ago.

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

According to a senior official of State Bank of Hyderabad, the relatively low-interest being charged by PSBs are attracting loan-seekers.

“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,” he said.

Private banks and NBFCs charge between 16 and 24 per cent, with loan size ranging between Rs 50,000 and Rs 2 lakh to be repaid in 24-36 months.

According to a senior SBI official, the bank now sees personal loans as a ‘good’ segment and it is ‘not reluctant’ to extend advances.

The relatively lower credit off take in other sectors (such as corporate lending) is also behind interest in personal loans.

According to the RBI data, bank credit grew 4.5 per cent this fiscal (till October) compared with 12.1 per cent last year. On a year-on-year basis, it grew 9.5 per cent compared with 28 per cent last year.

The preference, however, is for tapping existing customers. “This approach keeps our portfolio healthy,” said Mr Dua.

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

SBI, however, is also willing to consider the loan on a case-to-case basis for salaried categories even if they are not bank’s customers.

A clean credit history, salary credit into a bank account and high disposable income are some other parameters being examined in the due diligence process.

More Stories on : Public Sector Banks | Credit Market

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