The yield in unsecured loans is higher. However, whenever there is an economic downturn or the customer faces an economic crisis, individuals tends to default on these loans.
The safest way to do the business by banks is that they deducts the installment from the salary account and if the employee decides to quit the organisation, then the amount is deducted from the final settlement,
Of the bank’s total loan book, 58 per cent accounts for vechicle finance loans, 13 per cent account for other retail loans and balance is wholesale (corporate) loans.
According to the RBI data, personal loans grew 23 per cent year-on-year to Rs 87,944 crore as on May 25, 2007.
According to analyst estimates, the level of delinquency in the personal loans segment ranges from 10-20 per cent. This has led to banks tightening their due diligence of marketing agents and also reviewing recovery strategies.
The personal loan market has got very competitive with foreign banks and non banking finance companies entering this space. Banks such as ICICI Bank, HDFC Bank, Citibank, Standard Chartered Bank, Centurion Bank of Punjab and non banking finance companies such as GE, DBS Cholamandalam, Fullerton India among others are aggressively marketing personal loans.