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Want less than Rs 1 lakh? Banks say that's no loan

Nov 14, 2007 09:28 PM IST Business Business

Mumbai: Private and foreign banks are now trimming down their exposure to the sub-one lakh rupee loan category.

It may no longer be easy to get a personal loan which is below 1 lakh rupees.

Industry sources say big private and foreign banks - HDFC bank and ICICI bank, Standard Chartered, HSBC, and even some big ticket NBFCs like CITI Financial and GE Money are not too eager to lend to the sub-1 lakh rupee personal loan category.

However, most banks were reluctant to admit that they have stopped lending to this category of borrowers, though they maintained that they have turned cautious.

Even small banks like Centurion Bank, which is not active in this segment, say the default rate is increasing

"The industry is consolidating and turning cautious as delinquencies are growing at above 5-7%," said Centurion Bank's Retail Banking Head, Vivek Vig. "For now, the banks can absorb it."

For large banks absorbing a small loan default is not a big deal.

The other reason why bankers are rethinking their strategy, is that recovering these loans has become very difficult.

Using recovery agents and harsh tactics has only led to more problems for private banks, and thus, the decision to stay away from this segment.

Some bankers say the controversy surrounding recovery agents needs to cool off, and the industry as a whole needs to find better recovery mechanisms before they seriously lend to this sector again, or else banks will have to provide for an additional loss - that of their reputations.