For quite some time now, banks in India have been on a personal loan spree. So much so that the share of personal loans in the overall credit has crossed the share of loans given to the industries in the last two years. Personal loans consist of housing loans, vehicle loans, education loans, credit card payments, etc.
Table 1 | The table shows the share of various types of loans in the overall credit given by all banks in the September months of 2021, 2022 and 2023.
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By September 2021, the share of loans given to industries dominated with over 30% loan share. However, in the following years, the share of personal loans increased and reached 33% by 2023.
Table 2 | The table shows the year-on-year (y-o-y) growth in loans given to various sectors (in % terms).
Private banks are leading this personal loan spree. For instance, personal loans given by private banks grew y-o-y 17.8% in Sept. 2021, 18.8% in Sept. 2022 and by a remarkable 52.6% in Sept. 2023. Similar figures for loans given to industries by private banks were 8.6%, 14.2% and 10.7%. Corresponding figures for the service sector were 5.6%, 30.2% and 25%.
The high degree of spike in personal loans has caught the eye of the Reserve Bank of India. When the Monetary Policy Committee met in October last year, RBI governor Shaktikanta Das said, “...certain components of personal loans are, however, recording very high growth. These are being closely monitored by the Reserve Bank for any signs of incipient stress.”
Table 3 | The table shows the year-on-year growth (in %) in loans given to various sub-sectors in the personal loans category.
More importantly, inside the personal loan umbrella, housing loans dominate. As of September 2023, 50% of all personal loans given by public banks were housing loans, and as shown in Table 3 , they grew at 13.5% y-o-y. As of September 2023, 47.3% of all personal loans given by private banks were housing loans, and as shown in Table 3, they grew 87.4% y-o-y. So the housing loan growth was relatively more pronounced in private banks.
Put together, as of September 2023, 48.7% of all personal loans given by all banks were housing loans, and as shown in Table 3, they grew 40.7% y-o-y. No other personal loan category outpaced the growth of housing loans. So, both in terms of the overall share and in terms of y-o-y growth, housing loans dominate the personal loan market.
The rise of personal loans, especially housing loans, in particular among the private banks is keenly watched by the RBI. However, in a press conference following the October meeting, Mr. Das said that his statement was “only to caution the banks… watch the trends and take whatever measures are required.” In an event in November, he said that there was no stress as such in the housing and vehicle loan sector.
Data backs RBI’s approach. Despite the rapid increase in housing loans, the Gross Non-Performing Assets ratio (GNPA) of housing loans was the lowest among all personal loan types such as credit card receivables, vehicle loans and education loans. The GNPAs are bad loans which the borrower is not in a position to repay at the moment. A loan turns bad or becomes an NPA if they are overdue for over 90 days.
Table 4 | The table shows the GNPA ratio of various sub-sectors within the personal loans category (in %). Only 0.9% of all outstanding housing loans given by private banks turned bad in September 2023.
As shown in Table 4 , by September 2023, only 0.9% of all outstanding housing loans given by private banks had turned bad, compared to 1.9% bad loans in credit card receivables, 1.6% among vehicle loans and 2.7% among education loans. In fact, the GNPA of personal loan segment as a whole was also much lower compared to other sectors (agriculture, industry and service).
Source: Financial Stability Report published by the Reserve Bank of India
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