Retail lending in India maybe at a level much lower than in developed nations, but it is growing. NPA rates are also at lower levels when compared to the average NPA of the total credit portfolio. This is the right time for banks to put in place an appropriate risk management strategy before the situation goes out of hand. Concentration risk, high credit risk, rising frauds, impending interest rates revision are some of the factors which banks should consider carefully.
"Retail lending may accentuate indebtedness of household, with implications for sustainability of private consumption and saving in medium to longer horizon. Several cross- sectional studies suggest that retail lending may, however, pose various risks with implications for banks' asset quality."
The retail loan book of banks in the past few years have grown very fast (CAGR over 30%) and it now constitutes about 21% of the total loan portfolio. The credit expansion has also been shifted from metros to tier 2 and tier 3 cities also. The high growth in retail loan has started inviting the concern of various interested parties such as investors, regulators, bankers, etc. over different matters such as: Are Indians borrowing beyond their means?
Whether retail loan book is growing by broadbasing retail credit to a larger customer base or by over-leveraging the existing customers? Is the average customer leveraged too much beyond his capacity? Whether the growth is too high to cause concentration risk? Whether assets quality is compromised in volume led retail lending? Whether the portfolio may deteriorate with aging? And whether it is likely to crowd out industrial credit? |
