The Hindu Business Line : Personal loans are now ‘no, no’ for banks

Hyderabad, March 11 If you are pinning hopes on a personal loan to meet any expenses, you better keep an alternative ready. Confronted by growing defaults, banks are now reluctant to sanction personal loans.

While some public sector banks have imposed a virtual ban on personal loans (which are also called clean loans as they carry no security on them), there has been a significant slowdown in these loans in private banks.

“It is true that the personal loan market is tight and there is more caution among the banks. As some banks would be Basel-II compliant by the end of this month, there is more focus on risk mitigation,” Mr Amitabha Guha, Managing Director, State Bank of Hyderabad (SBH), told Business Line.

Many banks, including State Bank of Hyderabad, Andhra Bank, Vijaya Bank and Bank of India, have withdrawn the powers of sanctioning loans from the branch manager and moved them to the discretion of zonal offices or centralised retail asset processing centres, according to sources. “ Clean loans are a strict ‘no’ in our bank now though you cannot get any thing on record. The increasing defaults and recovery difficulties are behind this,” a senior official of Andhra Bank said.

Though no blanket ban is imposed officially, bankers are devising their own ways of discouraging the customers.

Tough due diligence

The experience of Mr Nagendra, who works for a private firm and sought a personal loan from a Central Bank of India branch, here confirms this.

“I have been asked to produce salary certificates and bank statement for last three years besides property documents in my name for a clean loan of Rs 50,000,” he said.

The private banks too are no exception. Major banks, including ICICI Bank and HDFC Bank, have made the due diligence tighter by revamping the score system.

“Compared to last year, there has been a 30-35 per cent increase in the rejection of personal loan applications in the last six months due to tough due diligence,” an ICICI Bank official said.

“The fact that banks are ready to lose a lucrative interest income ranging up to 22 per cent shows things are not well,” an official in SBH Retail Assets Central Processing Centre here said.

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