Lending to the retail sector does not impose any substantial risk on the financial health of banks, despite the retail segment’s faster growth compared to overall credit expansion and the rising proportion of unsecured loans within the retail sector.
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Anil Gupta, Senior VP, and Group Co-Head at ICRA, remarked, “Credit growth remains robust despite some moderation. Even at the expected pace of growth for FY2024, the incremental credit expansion would be the second highest ever, ranging from Rs 16.5 to 18 lakh crore, second only to the record level of Rs 18.2 lakh crore (15.4%) achieved last year.”
ICRA’s evaluation comes at a time when there are reports of the RBI closely monitoring the expansion of unsecured loan portfolios among banks. Banks have been enlarging their unsecured retail loan portfolios by offering “pre-approved personal loans,” which essentially entails credit sanctioned based on predefined parameters established by the banks’ systems.
The surge in bank credit primarily stems from the retail sector, which is outpacing the overall growth in bank credit. The retail loan segment’s share in banks’ portfolios has surged to over 32% as of June 2023, up from 18% in 2013. Housing loans constitute the largest portion of retail loans, accounting for almost half of the category’s loans. Nevertheless, the proportion of unsecured loans within retail has been steadily increasing.
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Gupta emphasized that based on current indicators, banks are well-equipped to manage any potential delinquencies in unsecured loans, owing to their solid capital adequacy and operating profits.
