The Reserve Bank of India (RBI) has identified consumer credit, particularly in sub Rs 50,000 personal loan segment, as a matter of concern due to high delinquency levels.

A build-up of stress is also represented in the fact more than half of the borrowers in the consumer credit segment have at least three loans running at the same time. In the last six months, more than one-third of the borrowers have availed more than three loans.

According to the latest edition of RBI’s Financial Stability Report (FSR), the delinquency levels among borrowers with personal loans below Rs 50,000 remain high. 

“In the consumer credit segment, there are a few concerns that require close monitoring. First, delinquency levels among borrowers with personal loans below Rs 50,000 remain high,” the report said.

Personal loans below Rs 50,000 currently account for 0.4% of total outstanding retail loans of financial institutions. As of 19 April 2024, total bank lending to personal loans stood at Rs 53.62 lakh crore.

NBFC-Fintech lenders, which have the highest share in sanctioned and outstanding amounts in below Rs 50,000 personal loans, also have the second highest delinquency levels, only below that of small finance banks, the RBI report said.

Vintage delinquency, which is a measure of slippage, remains relatively high in personal loans at 8.2%, the FSR report said. This indicates falling standards of underwriting.

Vintage delinquency is defined as the percentage of accounts that have anytime become delinquent (90+ days past due) within 12 months of origination. This industry metric is used to assess the efficiency of the loan underwriting process.

“Little more than a half of the borrowers in this (consumer credit) segment have three live loans at the time of origination and more than one-third of the borrowers have availed more than three loans in the last six months,” the RBI’s FSR report said.

In November 2023, the RBI had increased risk weight on the exposure of banks towards consumer credit, credit card receivables and non-banking finance companies (NBFCs) by 25% up to 150%. The purpose was to address build-up of any risks in these segments.

The central bank continues to remain concerned about the rapid rise in consumer assets and the possible ever-greening of many of these loans.