IndusInd Bank, a private sector bank, has exited the personal loans business. It has decided to offer personal loans only to customers with corporate salary accounts on fears that defaults would rise substantially. "The yield in unsecured loans is higher. However, whenever there is an economic downturn or the customer faces an economic crisis, individuals tends to default on these loans. Hence, on a standalone basis we have stopped giving personal loans,'' said Bhaskar Ghose, managing director, IndusInd Bank.
"This is the safest way to do the business as the bank deducts the installment from the salary account and if the employee decides to quit the organisation, then the amount is deducted from the final settlement,'' added Ghose.
Of the bank's total loan book, 58 per cent accounts for vechicle finance loans, 13 per cent account for other retail loans and balance is wholesale (corporate) loans.
According to the RBI data, personal loans grew 23 per cent year-on-year to Rs 87,944 crore as on May 25, 2007.
According to analyst estimates, the level of delinquency in the personal loans segment ranges from 10-20 per cent. This has led to banks tightening their due diligence of marketing agents and also reviewing recovery strategies.
The personal loan market has got very competitive with foreign banks and non banking finance companies entering this space. Banks such as ICICI Bank, HDFC Bank, Citibank, Standard Chartered Bank, Centurion Bank of Punjab and non banking finance companies such as GE, DBS Cholamandalam, Fullerton India among others are aggressively marketing personal loans.
Banks and NBFCs are focusing on unsecured loans products as the yield in this business is high which covers for any defaults. Interest rate on personal loans currently varies from 14 per cent to 30 per cent.
"We see growth in the personal loans business. In the unsecured space, we have better ability and hence, we are aggressively pursuing the personal loans business,'' said Neeraj Swaroop, CEO, StanChart, India.
CAUTIOUS NOTE
The bank has decided to offer personal loans only to customers with corporate salary accounts on fears that defaults would rise substantially
The yield in unsecured loans is higher. However, whenever there is an economic downturn or the customer faces an economic crisis, individuals tends to default on these loans.
According to the Reserve Bank of India (RBI) data, personal loans grew 23 per cent year-on-year to Rs 87,944 crore as on May 25, 2007
According to analysts' estimates, the level of delinquency in the personal loans segment ranges from 10-20 per cent
