Banks prefer 'safe' customers for personal loans

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BUSINESS LINE

Banks prefer 'safe' customers for personal loans

2009-04-09 08:36:43

Hyderabad: Alarmed over the growing number of defaults, banks have tightened personal loans and prefer to extend them only to their own customers.

Till recently, personal loans, along with credit cards, were a priority in the retail portfolio of the banks in view of the higher interest they earned. Many banks are not even considering a personal loan application from a non-customer.

"As they are non-secured loans, there are higher delinquencies in the industry in general. We are giving preference to our own customers with good track record," R.S. Reddy Chairman, Andhra Bank, told Business Line.

While the banks are tight lipped about the exact rate of delinquencies, according to experts, they range between 4 and 15 per cent.

ICICI Bank, which was very aggressive on the personal loan segment earlier, has even scaled down the marketing staff selling personal loans products, said a source.

"Unlike earlier, personal loans are being offered on the basis of in-house analysis of a customer's account," he added. The bank is using pop-up messages on its ATMs to offer personal loans for 'safe' customers.

When contacted, the official spokesperson of the bank declined to comment on the exact per centage of defaults.

According to an official of HSBC, the "unsafe" credit collection environment is the cause for fear on personal loans.

In fact, a couple of foreign banks have nearly exited from the segment though they deny this on record.

High Interest

While the interest rates are on the downward spiral, the personal loan customers are not being extended this benefit, mainly due to the fear of future defaults, say experts.

While the public sector banks are charging around 15 per cent interest on the personal loans, in some private banks and non-banking finance companies it ranges from 22 per cent to beyond 30 per cent.

Incentives

Interestingly, the existing customers are also given incentives for prompt repayment.