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Rising loan impairments at India's mid-ranking banks mirror their risky lending practices, says GlobalData


November 16, 2018 ( Newswire) From relying on the digital disruption in the financial services sector, the Indian personal lending sector is growing strongly. In response, the tier 2 banks have increased their risk appetite and as a result are experiencing rising loan impairments. This reflects their potentially risky lending practices and an inability to correctly assess the repayment capacity of borrowers, says GlobalData, a leading data and analytics company.

The company's latest report, Retail Banking Market Dynamics: India 2018, forecasts personal loan balances, which recorded a compound annual growth rate (CAGR) of 18% during 2013–17 to reach $135.5bn, to grow at a CAGR of 16% over the period 2018-2022.

The report reveals that increased average annual wages, change in lifestyle of younger population, low interest rates, enhanced financial awareness and the advent of latest technologies are the main factors driving the increasing popularity of personal loans in India.

Resham Karira, Retail Banking Analyst at GlobalData, says: "Digital lending in India is progressing at a fast rate and the loan application process is almost completely paperless. From e-KYC to disbursal, the process is going to get more seamless and hassle-free, thereby increasing the number of people opting for it."

In line with this trend, there has also been a sharp increase in the number of FinTech companies that are making it simpler for consumers to get these loans. In addition, initiatives like Aadhaar have created the perfect base for technology and data innovations, as well as for digital players and incumbents to offer consumers tailor-made lending products along with extremely convenient and quick processes.

These positive performance trends indicate that significant growth potential remains in the personal loans market. However, an analysis of GlobalData's Retail Banking Analytics reveals that incumbents are gaining market share in all product areas from mid-ranking banks.

Karira concludes: "Mid-ranking banks have responded by increasing their risk appetite, and are experiencing rising loan impairments as a result. This not only demonstrates massive growth but also the potentially risky lending practices in terms of aggressive lending and an inability to correctly assess the repayment capacity of borrowers."

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Editor Notes

  • Quotes provided by Resham Karira, Retail Banking Analyst at GlobalData
  • Information based on GlobalData's report: Retail Banking Market Dynamics: India 2018
  • This press release was written using data and information sourced from proprietary databases, primary and secondary research, and in-house analysis conducted by GlobalData's team of industry experts.

About GlobalData

4,000 of the world's largest companies, including over 70% of FTSE 100 and 60% of Fortune 100 companies, make more timely and better business decisions thanks to GlobalData's unique data, expert analysis and innovative solutions, all in one platform. GlobalData's mission is to help our clients decode the future to be more successful and innovative across a range of industries, including the healthcare, consumer, retail, financial, technology and professional services sectors.

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