Tighter rules for personal loans and credit cards in India are expected to raise costs for consumers and curtail the growth and profits of banks, which have ridden rising demand among small borrowers, bankers and analysts said on Friday.
The Reserve Bank of India (RBI) on Thursday instructed the country's banks to set aside more capital, after repeated warnings about rapid growth in some personal loans, triggering sharp share price falls among Indian lenders.
Unsecured loans, particularly by digital lenders, will see an impact, Dinesh Khara, chairman of India's largest lender State Bank of India told Reuters on Friday.
"Capital requirements have not been tightened for car loans, home loans, gold loans ... So core sectors responsible for growth in the economy are untouched," said Khara, who does not expect further tightening in rules from the central bank.
Lending rates in unsecured personal loans, which do not have any collateral backing them, could rise by 25-50 basis points (bps), Bank IDBI Deputy Managing Director Suresh Khatanhar said.
Bank credit in India grew about 15% over the past year but personal loans have grown at twice that pace.
Macquarie Capital Securities said bank loan growth could decline by about 200 bps because of the tighter rules.
The Nifty Bank index (.NSEBANK) dropped 1.3% while the Nifty Financial Services Index (.NIFTYFIN) closed 0.9% lower, with State Bank of India (SBI.NS) sliding 3.7% and non-bank financial company (NBFC) Bajaj Finance (BJFN.NS) down 1.9%.
The benchmark NSE Nifty index (.NSEI) closed 0.2% lower.
BUILD-UP OF RISK
The RBI's restrictions followed months of rapid consumer loan growth, particularly tiny personal loans of under 50,000 Indian rupees ($600.53), which sparked concern over consumer leverage and default risk.
Unsecured personal loans increased 23% from a year ago as of Sept. 22, while outstanding amounts on credit cards jumped nearly 30%, RBI data showed.
Data from credit bureau Transunion CIBIL showed that delinquencies, defined as loans overdue by more than 90 days, were at 0.84% for all personal loans. However, for loans below 50,000 rupees they were 5.4%.
"Lending by banks, NBFC (non-banking finance companies) or fintechs (digital lenders) to certain segments (new to credit) has shown some early signs of delinquencies which has caught the regulator's attention," said Virat Diwanji, head of consumer banking at Kotak Mahindra Bank.
CAPITAL HIT
While well-capitalised private banks can absorb the impact well, state-run lenders with lower common equity tier 1 ratios (CET1) could face bigger issues, Macquarie said.
The brokerage estimated top private lender HDFC Bank (HDBK.NS) could see among the biggest impacts to its CET1 ratio, of about 0.68%, while SBI Card (SBIC.NS), the credit card arm of SBI, may see a 4.52% hit to its CET1 ratio.
S&P Global Ratings estimates that the capital adequacy of Indian banks will decline by about 60 bps.
"Finance companies will be worse affected as their incremental bank borrowing costs will surge, in addition to the capital adequacy impact," it said in a statement.
($1 = 83.2600 Indian rupees)
