Banks are also tightening underwriting standards for such loans to reduce potential impact if asset quality slips.
A basis point is a hundredth of a percentage point.
HDFC Bank is offering personal loans at a minimum interest rate of 10.75% per annum since April, up from 10.35% between January and March.
At Kotak Mahindra Bank, interest rates on personal loans start at 10.99%, up from 10.50% around the time the increase in risk weights was announced.”As far as the rate scenario is concerned due to the rise in risk weights, most of the financial institutions have passed on the increase in the cost to the customer,” said Virat Diwanji, head – consumer banking at Kotak Mahindra Bank. “You will see 25 bps to 50 bps rise in personal loan rates. As far as the personal loan portfolio is concerned, it doesn’t give me sleepless nights.”Similarly, ICICI Bank is charging 10.80% interest on personal loans. The rate was hovering around 10.50% when the RBI increased risk weights.In a recent interaction between the ICICI Bank’s top management and brokerage house Motilal Oswal, the lender said that “it has improvised the credit filters in the personal loan segment as a risk measure and has also increased the pricing of new personal loans”. “However, currently no adverse trends were seen in the unsecured portfolio,” it said.
The private lender will also continue to tighten its underwriting in unsecured lending to support sustained growth and portfolio qualitv. Meanwhile, Axis Bank increased the interest rate on personal loans to 10.99% from 10.49% after the RBI’s risk weights announcement.
In November last year, the RBI directed banks to set aside more capital as risk weights for loans disbursed toward unsecured personal loans, credit cards and lending to non-banking financial companies. This was done to rein in the inordinate increase in such loans.
