RBI's suggestion to keep a close watch on poor unsecured loans

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Mumbai: A report by the Reserve Bank of India has recommended keeping a close eye on such loans after seeing signs of weakening in some segments of unsecured retail loans. The report notes that the share of poor borrowers in credit card outstandings is high.

According to a Reserve Bank study, the pattern of bank lending has changed drastically over the past decade. Personal loans or retail credit have increased in the overall credit portfolio of banks.

Personal loans accounted for the largest share of bank credit in June 2023. The share of personal loans in the total borrower account was 49 percent. A report prepared by a senior RBI official said that the precautionary measures taken by the Reserve Bank continue to be appropriate for financial stability.

The report was published after the Reserve Bank increased the risk weightage for unsecured loans.

The increase in the volume of retail credit in overall credit is due to its longer tenure. However, there is a need to ensure that the credit flows into the hands of the right borrowers.

In most of the loans, the customers who get large loans are reliable, but in the case of credit cards, the situation is reversed. Poor borrowers have a higher share of credit card delinquencies per borrower, indicating higher credit flows to riskier borrowers, the report also noted.

Most of the credit products have seen an increase in lending in the post-Corona period.

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