The Reserve Bank of India may need to tighten retail credit norms as the unsecured loan portfolio for the banking sector doubled in four years to reach INR 11.1tn ($148bn) and risky borrowing among less-privileged sectors grew. Unsecured personal loans circulated by banks and NBFCs rose 20.2% in Q4 2022 over the same period the previous year.
State-owned financial entities PNB, LIC, SBI, and BoB are said to be seeking formal bids for the sale of their 45% stake in UTI Asset Management Company (AMC). The quartet had previously appointed merchant bankers to initiate a sale process but the relationship with the Tata Group reportedly broke down due to a large interest holder insisting on a formal bidding process. While the final value is yet to be determined, UTI AMC was worth INR88bn ($1.2bn) as of Wednesday, with AUM of INR2.39tn ($32.7bn), equating to 6% of India's total industry AUM.
About 18 months ago, Kedaara had shelved a similar plan following allegations by Spandana founder Padmaja Gangireddy that it was selling off the company to Axis Bank at a "throw-away price".
Rating agencies are forecasting a fall in net interest margins (NIMs) for Indian banks of 10-20 basis points to 3.0-3.1% in the current fiscal year, due to rising deposit costs. However, the growth of non-performing loans could eventually increase profits the following year. Icra suggested that while this year's loan growth is likely to slow, adding higher interest rates may help to create the second-highest increase on record; in contrast, the banking system would see upward pressure on deposit costs, thereby putting pressure on NIMs.
Two of India's largest bank employee unions, the AIBOC and AIBEA, have urged the RBI to withdraw allowing compromise settlements for wilful defaulters, claiming it rewards unscrupulous borrowers and undermines the integrity of the banking system. The RBI recently introduced a framework for lenders governing technical write-offs and compromise settlements, including those classified as fraud or wilful defaulters.
The Reserve Bank of India (RBI) is looking to tighten scrutiny on the unsecured lending portfolios of banks amid the growing risk of potential defaults, four banking sources told Reuters. Unsecured loans - mostly personal loans and credit cards - do not carry any collateral and therefore pose a higher risk of default. These loans , however, are a big contributor to margins as they entail higher interest rates.
The ECL approach will require banks to increase provisions by 20-40%, largely on account of higher regulatory backstop compared with the IRAC norms, higher exposure consideration for undrawn facilities, cooling period for moving from stage 3 to 1, and lifetime provisioning considerations for stage 2 borrowers which are standard as per IRAC norms.
The RBI also announced a monetary penalty of Rs 6 lakh on Jowai Cooperative Urban Bank Limited, Meghalaya for deficiencies in regulatory compliance.
All regulated entities (REs) will be required to put in place board-approved policies for undertaking compromise settlements, with the borrowers as well as for technical write-offs laying down the process to be followed for all compromise settlements and technical write-offs, with specific guidance on the necessary conditions precedent, the RBI has said in a notification.