Mumbai: Unsecured bank loans have grown four times the bank credit during the past three years, helped by a rise in discretionary spending, technology-driven disbursements and lower interest rates, says a report.
Unsecured loans are loans where individual exposures are smaller, more distributed and given without any collaterals but where banks get higher margins. Typically personal loans, education loans and credit card spends fall under the unsecured category of loans.
“Between fiscals 2015 and 2018, unsecured credit—comprising personal, small and medium enterprise (SME), and credit card loans—clocked a compound annual growth rate of 27%, or an almost four times growth in bank credit,” said Crisil in a report yesterday.
As of March 2018, outstanding unsecured loans stood at around Rs 5 trillion, accounting for 26% of retail lending, compared to 21% three years ago.
Growth in unsecured loans is on account of a surge in discretionary spending, increased availability of customer data, faster disbursements driven by technology, and lower interest rates in some segments.
The report said financiers are expected to focus more on this segment due to attractive yields.
Return on assets are 2.5-3% for personal and SME loans, and 3-4% for credit cards, compared to under 2% for home loans and new passenger vehicle loans, said the report, adding that rising competition has led to lower rates in some segments such as personal loans.
In unsecured SME loans, rates have remained sticky, but average tenure and commissions paid to direct selling agents have increased, it said.