After RBI tightens norms, SBI may see moderation in unsecured lending portfolio

State Bank of India (SBI) Chairman Dinesh Kumar Khara said on Wednesday that the state-run lender anticipates a "moderation" in its unsecured lending portfolio following the recent tightening of norms by the Reserve Bank of India (RBI). Khara was speaking on the sidelines of an event organised by industry bodies FICCI and IBA.

Last week, the banking regulator announced stricter norms for personal loans and credit cards, in the form of higher capital requirements, raising the risk of slowing loan growth.

The RBI’s action is set to make such loans dearer and likely curb growth in these segments, as it asked banks to set aside more capital, following repeated warnings about rapid growth in some personal loans.

Khara said the higher risk weights will have a 0.02-0.03 per cent impact  on its net interest margin (NIM) in the current quarter, though a better picture will emerge in the quarter ending March 2024. NIM or net interest margin is a key measure of profitability for a lender.

Also Read: Volatile commodity rates, monetary policy uncertainty a deadly mix of challenges for policymakers, stakeholders: RBI Governor  

The RBI also introduced, as part of its November 16 announcements, increased risk weights for banks and non-bank financial companies (NBFCs) by 25 percentage points to 125 per cent on retail loans, and by 25 percentage points each to 150 per cent and 125 per cent on credit card exposures, respectively.

Risk weights are the capital that commercial lenders are required to set aside for every loan.

The SBI Chairman also mentioned that the bank's gross non-performing assets (GNPAs), or gross bad loans, from its unsecured loans portfolio stood at 0.70 per cent.

While SBI will continue its existing practices, there would be a discernible moderation in unsecured lending activities, Khara added. He also explained that the elevated risk weights necessitate banks to allocate more funds against each risky loan, creating higher buffers for potential stress.

The SBI Chairman also said that the regulator or certification agencies should be there to keep an eye on third-party service providers such as recovery agents and technology providers.

Earlier this month, Khara exuded confidence about the resilience of SBI's unsecured loan portfolio, attributing the segment's strong performance to the bank's strategic focus on lending to salary account customers and individuals associated with well-rated corporates.