The Reserve Bank of India (RBI) has once again sounded the alarm regarding the increasing trend in personal loans. This is not the first time the central bank has cautioned lenders about the mounting unsecured loan portfolio, with a particular focus on personal loans, credit cards, small business loans, and microfinance loans. In April, the initial warning was issued, and it has now been reiterated.
On the recent occasion, the RBI has urged scheduled commercial banks and non-banking financial companies (NBFCs) to closely examine their operations for any signs of strain arising from collateral-free personal loans. The central bank is actively monitoring the situation and is prepared to take pre-emptive actions to ensure financial stability. This readiness implies that the RBI may introduce regulatory measures to curtail unsecured lending if financial institutions fail to exercise caution.
Recent data from the RBI reveals that the share of personal loans in total non-food credit reached a record high of 30% in the fiscal year 2022-2023. For three consecutive years, personal loans have dominated the bank credit landscape, surpassing industrial credit, which had been the predominant segment for many decades.
Within the broader retail loan portfolio, personal loans accounted for 20.6% in the fiscal year 2022-2023. Notably, credit card outstanding debt experienced the most significant growth, with a 31% increase. The RBI’s heightened vigilance in the personal loan segment underscores concerns about the potential risks associated with such lending practices and the need for prudent oversight to maintain financial stability.
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