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With a rise in over-leveraged clients, lenders are wary
of unsecured loans
Delinquencies increasing in some credit card segments, micro loans
BusinessLine (Chennai) · 24 Oct 2024 · Piyush Shukla Mumbai
Banks and nonbanking finance companies are becoming increasingly cautious in growing their unsecured loan book due to over-
leveraging of customers, senior bankers say.
“On the MFI (microfinance loans) side, we restricted growth because, as we called out about two quarters ago, we were seeing some
strain. We are being cautious on growing in the MFI space. We expect the strain to continue for maybe two quarters, then it should
get stable,” said Ashok Vaswani, MD & CEO, Kotak Mahindra Bank. “In the credit card business also, we have seen some level of
credit stress due to over
leveraging of certain kind of customers,” he added. Kotak Bank’s slippages increased to ₹1,875 crore in Q2FY25 from ₹1,358 crore in
Q1 and ₹1,314 crore in Q2FY24.
Axis Bank ED Munish Sharda said the bank has a small microloan portfolio, which it is monitoring “very carefully”. “We have taken
risk actions to ensure that we do not venture into areas which can get overleveraged We are also having a sharp areawise, regionwise,
statewise focus on exposure... So, our disbursals have come down,” he said.
The bank’s officials said certain credit card segments are showing signs of early stress. So, the lender is tightening credit score
threshold for credit cards and curtailing spending limits.
MIXED BAG FOR NBFCS
NBFC major Bajaj Finance had a mixed second quarter, with higher volumes and operating efficiencies but also elevated loan losses,
resulting in muted profits and return on asset growth. The NBFC’s leverage analysis, based on June data, showed that customers
having three or more live unsecured loans are showing higher propensity to default, and collection efficiencies have come down.
Motilal Oswal said it expected Bajaj Finance’s credit costs to remain elevated in FY25 and normalise in FY26. However, the NBFC has
raised its credit costs guidance for FY26 to 185195 basis points against the 175185 bps earlier.
Piramal Finance said a chunk of its fresh slippages is from unsecured loans, and this segment’s customers are showing signs of
overleveraging, with some borrowing to invest in equities.
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