Defaults rising in consumer durables loan market

Delinquency rates in consumer durables loan market have gone up as high as 12-15 per cent, according to industry sources. Although bankers are reluctant to reveal non-performing asset (NPA) figures, some do admit that delinquency rates are going up.

A senior official from Bank of Baroda said, "NPAs in consumer durable loans segment is higher than for any other segment. However, they are not alarming. After doing reviews we have made operational changes to block the loopholes."

Senior bankers blamed over-aggressiveness of banks in pushing consumer loans for the problem. "The rate of default has doubled over the last one year," they said.

In some banks, certain branches have been warned and instructed not to extend further personal loans, which usually have no security attached.

The rise in default rates will, however, not have a major impact on the bottomline of banks as they form a comparatively smaller chunk of the credit portfolio.

Besides, the loans carry a very high rate of interest in the range of 12.5-20 per cent giving them a comfortable spread of 6.5-14.0 per cent taking into consideration the higher probability of default.

Most banks prefer to give these loans only to the salaried class and not to business men and the unorganised sector.

The loans, which have an average size of Rs 15,000-20,000, are disbursed after assessing the income of the borrower and his repayment capacity.

An official with Union Bank of India, "We observe the highest rate of default in consumer durable loans among all the loan products. But we have seen our default figure falling over the last year since we have stringent measures in place."

Even in the case of salaried employees, banks such as Union Bank of India typically lend only if there is an assurance from the employer since banks have seen cases of pre-dated cheques bouncing.

Further Union Bank of India insists on an irrevocable undertaking from the employer before extending the loan and debits the monthly instalment from the salary account of the borrower. The bank prefers to finance employees of companies that maintain the salary account with it.

Even if a linkage with the employer does exist, temporary delinquencies do arise. It takes place each time the borrower is transferred on his job or in the case of a resignation, suspension or prolonged illness with no salary.

"We review such cases with discretion and reschedule the repayment cycle if it is a genuine case," said a bank official.

State Bank of India, a couple of years back, pulled out its 'Big Buy' loan product after burning its fingers. The bank saw several cases in which the borrower had colluded with the dealer and diverted the funds.

Inspection of purchase of white goods is next to impossible, said an SBI official. SBI now offers personal loans which can be availed of for either buying durables or going on a holiday.