Indian banks are grappling with a huge burden of unsecured loans amounting to over Rs 93,240 crore, classified as special mention accounts (SMA) due to signs of stress or late repayments. This alarming figure constitutes nearly seven percent of the total unsecured loan, which stands at Rs 13.32 lakh crore. Public sector banks show a higher SMA rate of 9.9 percent in unsecured personal advances compared to private banks, which register 4.0 percent for unsecured retail loans. The categories SMA-0, SMA-1 and SMA-2, indicating varying degrees of late payments, contribute to the growing concern.SMA classification
Until March 31, 2023, the special mention accounts for secured retail advances and unsecured personal loans are at seven percent. The Reserve Bank of India’s classification includes SMA-0 (no overdue payment but signs of stress), SMA-1 (31-60 days overdue), and SMA-2 (61-90 days overdue). Repayment arrears exceeding 90 days lead to classification as a non-performing asset (NPA). The growth of unsecured personal loans in banks from March 2017 to March 2023 increased by 21 percent, surpassing the 19 percent growth of personal loans during the same period.
Unsecured personal loans, covering credit card receivables, consumer term loans and other personal loans, constitute nearly one-third of the total personal loan credit of Rs 41 lakh crore as of March 31, 2023, according to CareEdge Ratings. Non-Banking Financial Companies (NBFCs) contribute Rs 10.9 lakh crore towards personal loans. Fintech NBFCs appear most vulnerable to potential risks associated with unsecured personal loans, followed by private sector banks, public sector banks and other NBFCs.
NBFC exposure
Banks have increased their loan exposure to NBFCs, rising from Rs 7.75 lakh crore in March 2021 to Rs 9.23 lakh crore by September 2022. The growing reliance on NBFC funding has raised concerns of possible systemic contagion, necessitating tighter preventive measures . A recent move by the RBI increased risk weights on banks’ exposure to consumer credit, credit card receivables and NBFCs by 25 percent, reaching up to 150 percent. The central bank aims to discourage aggressive lending in these segments, given the growing stress on loan portfolios, and increased risk weights specifically target credit card receivables, which rose 29.9 percent year-on-year to Rs 2.17 lakh crore in September 2023. .