Expand retail loans: Govt

Ministry seeks eligibility details from public sector banks asks them to frame policy on gold loans

The finance ministry has asked state-owned banks to improve their retail lending. These banks, which generally lag their private counterparts on retail lending, have been asked to do so while ensuring there isn’t a spike in their bad assets.

In a recent communication to state-owned banks, the ministry has sought details on how these loans are priced, the approval mechanism and eligibility norms taken into consideration for approvals. It also wants the details on the time taken to approve the various segments of retail loans.

Retail loans cover those for housing, vehicles, education and all personal loans. The ministry has also asked each bank to adopt a standard policy on these loans.

“Generally, retail lending rates have been higher for public sector banks, compared to the private lenders. The ministry feels the interest rates on such loans should be similar and rates should also not vary across banks,” said a banker.

Private sector lenders have always been way ahead in the retail loan business, with a market share of a little more than 60 per cent.

According to Reserve Bank of India data, personal loans from all banks together increased 11.4 per cent over the year as of February 2012, as compared with 16.2 per cent in the previous year. Total outstandings as of February 25 were Rs 7,48,930 crore as against Rs 6,72,090 crore reported in the corresponding period a year before.

Almost all the components, except for credit card receivables, showed high growth. In the retail portfolio, while home loans grew 15.2 per cent year-on-year, vehicle loans grew 28.1 per cent. Education loans grew 19.9 per cent, while the dues on consumer durables were higher by 23.7 per cent.

Personal loans grew significantly by 17 per cent during 2010-11, as compared with 4.1 per cent during the previous year.

The ministry has also asked public sector banks to formulate a separate policy on gold loans. This should define the quality of gold offered as security for loans. It wants every bank to fix sub-limits and targets for branches and regional offices on gold advances.

Over the past two years, the gold loan business has grown significantly. Non-banking finance companies engaged in the business have grown their books by a little over 50 per cent, while banks’ growth in this segment has been 32-37 per cent.

Many state-run and private sector banks also entered the sector in a big way. Concerned at this sudden growth, the banking regulator had brought in a slew of measures to tighten regulatory supervision in this sector.

Also, in its monetary policy, RBI asked banks to reduce exposure from the existing 10 per cent of own capital funds to 7.5 per cent, in any single NBFC having gold loans to the extent of 50 per cent or more of total financial assets. Earlier, in February last year, RBI had removed priority sector status from gold loan companies, which led to higher cost of borrowings for those companies.