Growth in the unsecured loan segment will remain strong even if the Reserve Bank of India (RBI) increases the risk weights for such lending, a brokerage firm said.

The RBI has expressed caution on this segment and asked lenders to be more diligent when indulging in such lending so that no undue risk gets built up in the system. 

Banks and non-banking financial companies (NBFCs) have seen high growth in unsecured assets such as personal loans and credit cards.

According to some analysts, the RBI may increase the risk weights for such loans with the aim of moderating a lender's ability to lend to such segments as the capital charge goes up.

"Growth can remain strong even with higher risk weights," a report by Axis Capital Research said.

The note said the RBI had reduced risk weights on unsecured personal loans to 100% from 125% in September 2019, while credit cards continue to carry 125% risk weight.

If the RBI reverts the risk weight on personal loans back to 125%, the core capital for banks will get hit under 0.40%, the note said.

"If asset quality holds up and risk-adjusted returns are favourable, an increase in risk weights alone may not lead to any significant slowdown in the growth of unsecured personal loans," the report added.

The loan is being driven by both banks and NBFCs. According to the report, the NBFCs depend on fintechs for the lending growth. The fintechs hold nearly half of the market share by value, it said.

The delinquencies on the product remain low, it said, adding that any rise in provisioning will be "manageable" for banks.

For banks, the combined share of unsecured retail loans which have not been paid for over 30 days has declined to 2.38% in March from 4.2% two years ago, the brokerage said.

It said large banks, having strong customer ownership, growing digital capabilities like the use of AI/ML, digital scorecards, better insights into customer cashflows and self-funding via deposit balances, are better placed for the opportunity in unsecured lending.