The Changing Complexion of Bank Loans

For the past many years, commercial bankers have been saying that due to India’s high levels of non-performing assets (NPAs) in the corporate sector, they have been focusing more on the retail segment. At the system level, the latest numbers from RBI are now reflecting this shift that has been happening for some time. The total rupee value of retail or personal loans (including home loans) has surpassed the total value of loans to industry (not including services). Also, as a result of services becoming a larger and more important part of India’s maturing economy, aggregate loans to the service sector (including trading businesses) have almost caught up with industry loans – around 28 lakh crores.

Over the past decade, loans to retail have grown at 14%, services at 10% and industry at only 4% (see BloombergQuint article below for reference).

https://www.bloombergquint.com/business/retail-and-industry-loans-come-neck-and-neck-for-the-first-time-ever-shows-rbi-data

While focusing on personal loans is a good strategy for commercial banks that have a strong retail franchise, almost every bank and NBFC is chasing this segment these days. At the end of the day, it’s not the segment of loans that matters, it is the knowledge of the end customer and underwriting standard, procedures and skills that make the difference between high and low levels of NPAs.