MUMBAI: While there is no denying that small-value retail loans are under some stress, the situation is not so severe or widespread that it poses a systemic risk, according to CS Setty, Chairman of the State Bank of India. Setty pointed out that most of these delinquencies stem from "new-to-credit" customers.
Admitting that some risks are building up in small-ticket and unsecured loans, Setty said: “We have seen that small-value loans have problems, particularly personal loans ranging from ₹15,000 to ₹1 lakh. This is because many new-to-credit customers are accessing the market." However, he emphasised that these issues have not yet reached a level that the industry should be alarmed about, stating: "It is not really in a proportion that we need to be worried about now."
Setty, who took over as chairman of the nation’s largest lender late last month, was speaking at a banking conclave organised by the Bengal Chamber of Commerce & Industry on Wednesday.
He did not quantify the level of stress in these loans, but public data compiled by consultancy firm BCG shows that the number of new-to-credit customers has halved over the past few years, dropping to 100 million from 200 million. This suggests that the formalisation of financial services is losing momentum.
To address the problem, Setty advocates for more focused, data-driven lending. "Much of this unsecured lending is based on credit bureau data. Data-based lending will be much more robust, and more frequent updates of bureau data would definitely help moderate the risks," he said.
Previously, credit bureau data on borrowers was available every two months. However, from January 2025, the Reserve Bank of India will require lenders to report credit data at least fortnightly, on the 15th and the last date of each month.
The data must be shared within seven days of the end of the relevant fortnight, and the bureau must ingest the information within five days. Lenders can also opt to share data more frequently, potentially on a weekly or even daily basis.
Turning to the broader issue of financing a fast-growing economy, Setty noted that while banking serves as a proxy for the real economy, it cannot meet all the financial needs of the country.
He suggested that new sources of funding, such as mutual funds, pension funds, and insurance companies entering the corporate bond market, are essential for supporting the capital requirements of the industry and the economy.
“A good portion of household savings is going into these funds,” Setty said, highlighting the need for these funds to contribute to corporate financing. "Some of the future credit growth and funding will have to come from non-banking financial markets. Not only capital markets but mutual funds, pension funds, and insurance funds, I think they all have to participate in corporate financing."