Personal Loan business is growing aggressively

Market for personal loan in India is growing and has become competitive with the coming of foreign banks and non banking finance companies entering this space. Banks such as ICICI Bank, HDFC Bank, Citibank, Standard Chartered Bank, Centurion Bank of Punjab and non banking finance companies such as GE, DBS Cholamandalam, and Fullerton India among others are aggressively marketing personal loans.

With the growth the level of delinquency has gone up by 10-20 per cent. This rise in the delinquency has led the banks to tighten their due diligence of marketing agents and also reviewing recovery strategies.

The RBI data shows the growth of 23 percent in the personal loans year-on-year to Rs 87,944 crore as on May 25, 2007.

Banks and NBFCs are working on unsecured loans products as the yield in this business is high which covers for any defaults. There is a variation in the interest rate on personal loans from 14 percent to 30 per cent.

Neeraj Swaroop, CEO, Standard Chartered India said, “We see growth in the personal loans business. In the unsecured space, we have better ability and hence, we are aggressively pursuing the personal loans business.”

But there are some banks like IndusInd Bank, a private sector bank who are opting out of the personal loan business. Bhaskar Ghose, managing director, InduInd Bank said, “The yield in unsecured loans is higher. However, whenever there is an economic downturn or the customer faces an economic crisis, individuals tend to default on these loans. Hence, on a standalone basis we have stopped giving personal loans.”

IndusInd Bank will give personal loans only to customers with corporate salary accounts as the number of defaulters is rising. Ghose said, “This is the safest way to do the business as the bank deducts the installment from the salary account and if the employee decides to quit the organization, then the amount is deducted from the final settlement.”

According to bank’s loan data, 58 per cent accounts for vehicle finance loans, 13 per cent account for other retail loans and balance is wholesale (corporate) loans.

ICICI making zoom in private banking

ICICI bank has a strong foothold amongst the Indian private banks. It has a base of over a lakh customer, and is looking further to embark on a wider branding exercise for its flourishing private banking business.

Anup Bagchi ICICI SGM Global Private Banking said, “We now have a base of over one lakh private banking customers and in a couple of months we start branding the division to help the new generation develop relatedness with the bank."

There has been growth in the financial sector with top executives working with MNC taking home fatter pay packets, with employee stock options and small and medium enterprises on the accent.

Private banking involves specialized financial and investment advisory services for high net worth individuals through relationship managers.

Bagchi said the bank plans to double the number of relationship managers which explains the inherent demand from the sector.

Apart from the four metros cities, the cities like Pune, Nasik, Banaglore and Chandigarh, having large industrial activities too are providing the opportunities for private banking.

Bagchi further added, in the months to come, ICICI will develop special lounges for its private banking customers in 20-25 metopolitian and bigger cities. "The lounges are a way to provide the aspirational value to the customers, who have had a long association with the bank."

Apart from the four metros cities, the cities like Pune, Nasik, Banaglore and Chandigarh, having large industrial activities too are providing the opportunities for private banking.

Bagchi further added, in the months to come, ICICI will develop special lounges for its private banking customers in 20-25 metopolitian and bigger cities. "The lounges are a way to provide the aspirational value to the customers, who have had a long association with the bank."