India Ratings and Research (Ind-Ra) in its latest report has said that unsecured loans are on the rise, but the Reserve Bank of India (RBI) is unlikely to put regulations to curb the same. It feels there are no issues on asset quality as a result of the fast-paced growth in the portfolios as yet. It also said most of the unsecured lending by banks is to salaried individuals, especially ones with whom banks already have a long relationship, giving them a look into cash flows while making the lending calls, and events like major job losses can hurt the asset quality. 

The rating agency said it can be noted that banks have been reporting very high growth in the retail unsecured books for the last few months, leading to concerns over its possible impact on asset quality. In its mid-year review of the banking sector outlook, it said banks, especially the private sector ones, are focusing on unsecured lending products to protect their margins, which have come under pressure. It noted that the net interest margins are set to compress by 0.15-0.20 per cent to 3.41 per cent for the banking system as a result of the struggle for deposits, which will increase the rates offered to depositors.

According to the report, the current spike in deposit growth to over 13 per cent due to the withdrawal of the Rs 2,000 notes that has got additional funds of over Rs 3.5 lakh crore to the system, and adding that the growth may be transitory. It upwardly revised its FY24 deposit growth estimate to over 12 per cent, and maintained the view that credit growth will come at 13.5 per cent. The NPAs will reduce further to 3.2 per cent at the end of the fiscal for the banking system. The private capital expenditure is at the cusp of revival, and companies can start to invest in the next six months.