Banks advised to exercise caution in unsecured loans amid high interest rates

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Mumbai: Amid rising interest rates and inflation, the Reserve Bank of India (RBI) has instructed banks in the country to exercise caution in providing unsecured loans. A banker said that in several meetings held with bankers during the last two-and-a-half months, the tone of warning on behalf of the RBI has been raised.

Unsecured loans mostly include personal loans and credit cards with no collateral against them, so they carry the highest risk.

This warning has been uttered by the Reserve Bank in view of the fact that Indian banks are increasing unsecured loan portfolios with the reduction of stress related to Corona.

At the beginning of the current year, the outstanding amount due to credit cards was Rs 1.87 lakh crore as compared to Rs 1.53 lakh crore a year ago.

The risks inherent in unsecured loans are under the watch of the Reserve Bank, said a bank official. Banks are also being instructed to tighten underwriting before disbursing loans.

The Reserve Bank believes that the risk of defaults has increased in view of the continuous increase in interest rates over the past one year. In the last one year, the repo rate has been increased by two and a half percent to 6.50 percent.

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