The loan-growth trigger is personal again For Banks

In a sign of returning confidence, banks have started giving out Personal loans, opening the fund tap to customers who do not have an account with them.

Hardly surprising, the personal loan segment has started clocking a healthy growth rate of 20-25% after long.

Several major players had exited the segment in the aftermath of the Lehman Brothers crisis of 2008 in view of the risks involved.
“We remained in the business, but we had sort of moderated the growth rates. For 2008-09 and 2009-10, growth rates were at about 5-8%,” Paresh Sukthankar, executive director, HDFC Bank, said in a conference call.

This appears to be changing. As of June 30 this year, HDFC personal loan book stood at Rs10,980 crore, of which 40-50% has been disbursed to non-account holders, said Suktankar.

From a bank’s perspective, of course, it is comforting to lend to an existing customer since you know his transaction patterns and can keep a tab on repayment. But, if they must lend to new ones to be able to achieve credit growth targets, so be it.

“If we give personal loans to new customers, we also make sure that opens a banking relationship with him,” said Kamlesh Rao, head personal and home finance, Kotak Mahindra Bank.
At the end of last fiscal, Kotak Mahindra Bank’s personal loan book stood at Rs1,500 crore.

Among others, Standard Chartered Bank and Barclays Bank have also ramped up their personal loan disbursals in the past few months, sources said. However, neither of the two banks responded to an e-mail query on the issue.

Analysts believe banks covet the segment but will increase their exposure gradually in order to avoid burning their fingers again.
“Banks have started giving personal loans to non-account holders on an experimental basis. Banks ensure that they give it to a salaried employee so that it is easier to handle the cash flows.

They also see if the person getting the loan has a reasonable track record. Recovery of loans is still a tough task due to which banks will be a bit slow,” said Suresh Ganapathy, head of financial research team, Macquarie Securities.

“The fixed deposit rates are getting really attractive, so a lot of funds are now flowing into the banks. They need to deploy these funds somewhere. I think all banks, whether private or public sector, will now give more personal loans,” said Suresh Sadagopan, who runs Ladder 7 Financial Advisory Services.