Bad loans eat 2.5 % of retail portfolio

Bad loans account for 2.5 per cent of banks' total retail loan portfolio. Among retail loans, consumer durable loans have the highest level of bad loans at 6.3 per cent.

This is, however, lower that the gross non-performing asset (NPA) ratio of bank's entire loan portfolio at 7.4 per cent. Within the retail segment, home loans, which form nearly 48 per cent of the total retail portfolio, had the least gross NPAs at 1.9 per cent, while consumer durables segment had the highest at 6.3 per cent.

The gross NPA for credit card receivables is also high at 6.3 per cent, said the Reserve Bank of India in the annual trend and progress report of banking in India 2003-04.

Interestingly the gross NPA of other personal loans is lower at 2.6 per cent. Retail lending has been the key profit driver for banks in recent times with retail portfolio constituting 21.5 per cent of the total outstanding advances as on March 2004.

But there are various concerns as to whether retail lending has emerged as an efficient channel for improving access to credit and promoting broad-based development, said the report.

At present, retail lending is largely confined to urban and metropolitan regions and rapid increase of retail loans could impinge on bank credit for investment.

In order to temper banks' indiscrimnate lending to the retail sector, Reserve Bank of India recently increased risk capital that banks have to provide when giving out housing loans, consumer credit and credit cards.

The new risk weights have led to increase in home loan rates and forced banks to be more choosy in who they lend to.