RBI extend concern over high default levels in personal loans below Rs 50,000

The Reserve Bank of India (RBI) on Thursday expressed concern over the consumer loan segment, especially the personal loan segment below Rs 50,000, where delinquency levels remain high.

RBI said more than half of the borrowers in the customer loan segment have 3 live loans running at the same time.

“In the consumer credit sector, there are some concerns which require close monitoring. First, delinquency levels remain high among borrowers with personal loans less than Rs 50,000,” RBI’s Financial Stability Report (FSR) said.

At present, personal loans below Rs 50,000 constitute 0.4 percent of the total outstanding retail loans of financial institutions. As of April 19, 2024, the total exposure of banks on personal loans was Rs 53.62 lakh Crore.

Notably, non-banking financial companies (NBFCs)-fintech lenders, which have the highest share in sanctioned and outstanding personal loans of less than Rs 50,000, also have the second highest delinquency levels after small finance banks, reports said.

More than half of the borrowers in this segment have three live loans at the time of origination and more than a third of borrowers have availed more than three loans in the last six months, the RBI report said.

“More than half of borrowers in this (consumer lending) segment have three live loans at origination and more than a third of borrowers have received more than three loans in the past six months,” the report said.

It may be noted that in November 2023, the RBI had increased the risk weight on banks’ exposure to consumer loans, credit card receivables and non-banking finance companies (NBFCs) from 25 percent to 150 percent. The move was aimed at addressing any risk build-up in these areas.
Risk weight refers to the capital that banks set aside as provisions to cover any loan defaults.