SBI Chairman Dinesh Khara backs move to curb 'unhealthy' loan growth

India’s recent clampdown on unsecured loans is the right move to curtail “unhealthy growth” in borrowing by individuals, according to the chairman of the nation’s biggest bank. 

Strong expansion of retail loans, at an annual rate of about 30%, was a “sign of heating up,” State Bank of India’s Dinesh Khara said in a Bloomberg Television interview at Davos on Tuesday. 

Earnings at Indian banks have been bolstered in recent quarters by an increase in demand for credit and lower bad loans, increasing the regulator’s concerns over a potential buildup of risks in the economy. With unsecured lending rising almost twice as fast as overall credit, the Reserve Bank of India asked banks to increase buffers for some consumer loans in November. 

“I am sure it will go a long way in terms of bringing orderliness and ensure the growth will remain healthy,” Khara said. Retail credit expansion of about 14% to 15% would be “good growth,” he added.  

The nation’s banks including State Bank of India have insisted their unsecured loan books are of high quality and low risk, but most are dialing back the growth of such portfolios. Lenders have also been trying to keep up with the credit growth by seeking more deposits.

Meanwhile, SBI is evaluating if it needs more capital, Khara said. It’s exploring raising capital through additional Tier-1 bonds after recently issuing Tier II bonds, he said. 

“We are actually mindful of exploiting all possible channels to ensure capital is not falling short and we should always be able to support the growth,” Khara said.