PSBs offer personal loans at attractive rates, CIBIL data shows
Hit by the economic disruption caused by the Covid-19 pandemic, overall personal loan activity declined 42.2% year-on-year in August 2020.
However, the approach of public sector banks (PSBs) stood out during the pandemic with an increase in their activity of 66.5%, according to data from the CIBIL credit bureau.
The interest rate offered by PSBs like the State Bank of India (SBI), Bank of Baroda and Bank of India hovers around 8.9% to 10.50%. For private banks, the range is between 10.49 percent and 12 percent. Finance companies offer loans at rates ranging from 11% to 24%.
CIBIL said that as a result, the share of PSOs in personal loan origination volumes rose to 26.8% in August 2020 from 9.6% in August 2019. Non-bank financial corporations (NBFCs) lose shares market in loan arrangements. It fell to 16.8% in August 2020 from 39.5% in the same month last year.
Senior bankers said the strategy to expand personal lending business was a well thought out step. The risk assessment and client selection were rigorous. Most of these loans have been made to customers with known credit history and history. In addition, while providing personal loans to new clients, salaried and government employees are the top priority, an SBI executive said. Caution has been called for for lenders in the aftermath of the pandemic as economic disruptions have resulted in job losses and wage cuts.
Data from August 2020 shows that personal loan approval rates for PSOs and private banks have remained almost unchanged over the past year.
NBFCs and FinTechs, on the other hand, appear to have turned conservative, the credit bureau said.
Lenders are currently facing multiple challenges. These challenges include realigning the distribution network to support social distancing, managing consumer demand, rebalancing the operational workload, monitoring the portfolio, and ensuring employee health and safety.
Lenders must proactively anticipate and be prepared to respond to changing market conditions and changing consumer needs that will develop as the crisis progresses, CIBIL added.