The demand for unsecured loans continues to rise and has come to the attention of the RBI, again. The credit uptick signals buoyancy in the ecosystem on improved consumption and spending but the risk of high defaults is not being seen, experts say
There has been much good news in India’s economic growth story recently: Better-than-expected GDP growth, early signs of a recovery in domestic consumption demand and financial institutions that are aggressively lending. This last, however, is not necessarily great news for the traditionally cautious regulator Reserve Bank of India.
It has, both in informal discussions with banks, and formal publications (half-yearly) Financial Stability Report released in June this year highlighted the rapid pace of growth of unsecured loans in India’s retail loans segment over the past two years. Unsecured loans—largely personal loans, loans on credit cards and some forms of consumer durables and student education loans—do not have collateral and thus are considered riskier than secured loans (auto, home, loan against property). Add to that a still high interest rate regime and it raises risks to the lending system.