Unsecured bank loans grew 27% in FY 2015-18: Report
What's the story
Unsecured credit, comprising personal, small, and medium enterprise (SME), and credit card loans, clocked a compound annual growth rate of 27% or almost four times growth in bank credit in FY 2015-18, Crisil said.
Growth in unsecured loans is on account of a surge in discretionary spending, increased availability of customer data, faster disbursements driven by technology, and lower interest rates in some segments.
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What are unsecured loans?
Unsecured loans are the loans where individual exposures are smaller and more distributed; the loans are given without any collaterals but banks get higher margins. Typically personal loans, education loans, and credit card spend fall under this category of loans.
Return on loan
Return on assets is 2.5-3% for personal and SME loans
The report said financiers are expected to focus more on this segment due to attractive yields.
Return on assets is 2.5-3% for personal and SME loans, and 3-4% for credit cards, compared to under 2% for home loans and new passenger vehicle loans, it said, adding rising competition has led to lower rates in some segments such as personal loans.
Information
Outstanding unsecured loans around Rs. 5 trillion as of March
As of Mar'18, outstanding unsecured loans stood at around Rs. 5 trillion, accounting for 26% of retail lending, compared to 21% three years ago. In unsecured SME loans, rates remained sticky, but average tenure and commissions paid to direct selling agents increased, the report said.