MUMBAI: Stung by high default rates in the personal loan, credit card and microfinance (MFI) portfolios, Indian banks are slashing credit card limits and restricting pre-approved personal loans. Some of the lenders have also reduced loan-to-value (LTV) ratios on mortgage loans, bankers told ET."We have identified stress segments in our unsecured portfolio based on customer segment, geographies, credit scores and sectors that are showing signs of trouble," said the retail head of a private sector lender. "We have reduced risks in these segments by lowering credit card additions, reducing credit card limits, lowering LTV and keeping away from segments which have thrown up high risk."Several lenders said that they now prefer offering loans to customers with credit scores of more than 750 from a cap of 720 seen prior to the onset of stress. Banks are also keeping a very close watch on days past due (DPD), where collection machinery gets triggered at day zero DPD."We have taken a very granular look at our own portfolio and found multiple variables which are actually the drivers of credit cost," Arjun Chowdhry, group executive at Axis Bank had said in the post-earnings call with analysts. "Things such as the obligation to income ratios, degree of indebtedness, the number of inquiries, the nature of the loan, the nature of the geographies, the nature of the occupation, multiple things. We continue to calibrate both our acquisitions and our existing stock of loans and cards in line with what we see."The Reserve Bank of India has been continuously flagging the buildup of risks in the unsecured segment, saying that more than half of consumer loan borrowers are repaying at least three loans simultaneously. It also said delinquency levels among borrowers with loans below Rs 50,000 were extremely high. The microfinance and fintech industries have been grappling with the issue of customers having more than four loans with a total outstanding of more than Rs 2 lakh.115191891Banks are also de-risking themselves from MFI loans by restricting book growth. Another way banks are eliminating risk is by moving away from the young millennial population which is considered to be the largest culprit in maxing out credit cards and not repaying them."Our customer level indebtedness reduced 6% sequentially with average loan exposure per customer at Rs 39,685, amongst the lowest in the industry," Sumant Kathpalia, MD, IndusInd Bank had said in a recent post-earnings analyst call.The stress due to overleveraging along with the slowdown in the rural household incomes, has prompted an increase in delinquency that could play out over the next two to three quarters."Growth in excess of 20% has resulted in over-leveraging and this segment is very vulnerable. When MFI slips you don't recover much and I don't think MFI is a book that banks can stomach well," said Suresh Ganapathy, managing director, financial sector research at Macquarie Capital.The RBI has highlighted its apprehensions around a few outliers who charge usurious interest rates along with unreasonably high processing fees and frivolous penalties.
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