Delinquencies of personal loans lower than those of home loans, says Equifax

Delinquencies in personal loans stood at 0.79% and in home loans it was at 0.46%

Personal loans, a type of unsecured credit which typically has higher delinquencies, has seen surprisingly low delinquencies for the banking industry and is now in fact lower than bad loans reported in the mortgages segment, says a report by credit rating agency Equifax.

According to the report, the 90-day plus segment (loan dues outstanding for more than 90 days at a stretch) for personal loans stands at 0.47 per cent at the end of the January-March quarter of 2016. This was lower than the 0.49 per cent delinquency rate of home loans in the same period. Home loans, being a secured product, usually have the lowest delinquencies. This is also significantly lower when compared to some other products such as auto loans, which stand as 1.47 per cent, gold loans at 1.11 per cent and business loans at 3.22 per cent.

For the quarter, delinquencies in personal loans stood at 0.79 per cent and in home loans it was at 0.46 per cent.

  This improvement comes at a time when lenders across the industry are focusing on retail loans to grow their books. And as a result the unsecured segment such as personal loans and credit cards has recorded good growth for most banks, especially at private banks.

Bankers point out that stringent loan disbursement products and the presence of credit information companies have helped them contain bad loans in the unsecured segment. The low delinquency rate in this segment is a departure from the 2008-09 financial crisis when this was one of the segments that had seen a spike in non-performing assets.

“For private banks, mortgage, auto and personal loans represented the bulk of new loans. Personal loans saw an increase in originations driven primarily by growth at private banks and non-banking financial companies (NBFCs),” said the Equifax report.

It also stated that the January-March quarter saw a 6.5 per cent growth in the portfolio receivables quarter-on-quarter.  And the overall 90-plus delinquency rates as of this quarter grew to 1.60 per cent, an increase of eight basis points from the previous quarter.

Not surprisingly, public sector banks accounted for half of the country’s total receivables, with mortgage and agri loans accounting for 52 per cent; the banks’ overall delinquency rate was 2.16 per cent. The lenders had seen some rise in bad loans mainly in business, auto and educational loans.