Bank holding stressed unsecured loans of more than Rs. 93,240 crore


  Banks have been lending more loans to non-bank financial companies. It has increased from Rs. 7.75 lakh crore to Rs. 9.23 lakh crore by March 2021 to September 2022. Recently, the CAFRAL (Centre for Advanced Financial Research and Learning) expressed worry about the rise in bank funding for NBFCs (non-bank financial companies). Those banks that hold more than Rs. 93,240 crores of unsecured loans and fall in the special mention accounts (SMA) category are also blaming NBFCs, particularly fintechs, for the sharp increase in unsecured loans.

 These special mention accounts represent around 7% of the Rs. 13.32 lakh billion in outstanding loans.

 Public sector banks’ special mention account categories (SMA-0, SMA-1, and SM-2) had an SMA of 9% for unsecured personal accounts as of March 31, 2023, as compared to 4% for private banks for a category of unsecured retail loans.

As per Care Ratings, banks that fall under SMA-0, 1, and 2 categories hold 7% of their unsecured retail loans.

  RBI classifies that principal or interest payments are not overdue by more than 30 days in the SMA-0 category, but the account is showing early indicators of stress. In the SMA-1 category, the principal or interest payment period varies from 31 to 90 days, and in the SMA-2 category, the period varies from 61 to 90 days in terms of principal or interest payment. It is classified as a non-performing asset (NPA) if the repayment is overdue by more than 90 days.

 The unsecured personal loans, including consumer durable loans, credit card receivables, and other personal loans, have been increased from March 2017 to March 2023 by 21% and later increased by 19% during the same time.

 NBFCs hold Rs. 10.9 lakh crore of personal loans as per the Care report, while unsecured personal loans make up one-third of overall bank personal loans, which is around Rs. 40.9 lakh as of March 31, 2023.

 Due to a number of factors, the demand for unsecured personal loans has increased. These factors include increased purchasing power, changes in the population, the expansion of credit bureau coverage, the adoption of the digital payment system, the evolution of fintech, and broader access to the internet and broadband.

 As per Care, the lending environment in India is impacted by the merger of technology and finance, which makes personal loans more convenient for a large segment of the population.

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