Credit cards, personal loans problem areas for banks: Bhatt

State Bank of India (SBI) today said the banking sector is facing pressure on assets due to a sharp increase in defaults on credit card and personal loan payments.

"In the last two years, there has been a sharp deterioration in the asset quality (of lenders) because of stress in products like credit cards and personal loans, which is a challenge as we go forward," SBI Chairman O P Bhatt said at a banking conference organised by industry body Ficci and the Indian Banks Association.

The number of credit cards in circulation have, however, gone down by 17 per cent to 1.89 crore as on June 30, as against 2.28 crore in the same period last fiscal. They accounted for about Rs 17,000 crore of transactions during the first quarter of the current fiscal, according to the RBI data.

Personal loans, which is another area of concern for the banking sector, are those funds which are provided by the banks, but are not tied to purchase of any specific good. Banks had been aggressively selling personal loans as they fetch higher returns in term of interest rates.

Bhatt further said that losses accruing out of "alleged mis-selling of derivatives", or the selling of inappropriate products, also needed to be checked.

Referring to liquidity situation, Bhatt said there has been a wide fluctuation in the availability of funds with the banking system in the recent past.

Describing the liquidity situation like a "yo-yo", he said fund management has become a challenge for the banking system.

Bhatt, who is also the Chairman of the IBA, said he saw a huge potential for growth across sectors, fuelled by aspirational youth, in the days ahead.

Indian banks, he added, will have to focus on various factors, including hiring the right staff and developing leaders, to meet the growing needs of demanding customers.

Home loans, he added, would be a major growth area for the banking sector in the coming days.

The home loan portfolio, he added, would cross $1 trillion in the next ten years.

On infrastructure, Bhatt said the country will need about a trillion dollars in the 12th Five-Year Plan to fund the development of basic amenities in the country.

Planning Commission Deputy Chairman Montek Singh Ahluwalia, he added, had held discussions with bankers on the possibility of creating an infrastructure fund to meet the growing funding requirement of the infrastructure sector.