Banks bet on personal loans despite signs of rising stress

Lenders to expand high-yield portfolio even as growth slows; focus on salary account holders

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Indian banks turned cautious on personal loans after the regulator's warnings and rising stress in collateral-free advances and microloans, slowing growth in one of their fastest-growing segments. Yet, far from giving up on it, they continue to bet on such lending to grow.

Most lenders, in their third-quarter earnings calls, guided that while growth may have slowed for a quarter or two, a majority of their customers continue to pay on time. They will continue to expand the portfolio in the coming quarters given that the bulk of the exposure is to salaried account holders and overall portfolio quality remains robust.

While the banking sector, including State Bank of India, has seen some slowdown in this segment, the lender's portfolio is different because the bank typically only lends to salaried customers that have accounts with SBI, said CS Setty, chairman of India's largest lender by assets, at the Q3 earnings conference.

"Our (unsecured personal loan) portfolio is showing good growth in the current quarter, which means that whatever lower growth we had in the last three quarters, we were able to reverse that," Setty said, adding that while the earlier levels of 30-32% compound annual growth rate (CAGR) may not be possible, it of m will "definitely come back to double digits".