Why it makes sense to take personal loans from PSBs

The interest rate offered by PSBs like SBI, BoB and BoI hover around 8.9 per cent-10.50 per cent. For private banks, the range is between 10.49 per cent and 12 per cent.

Hit by economic disruptions caused by the Covid-19 pandemic, the overall personal loan business declined by 42.2 per cent on a year-on-year (YoY) basis in August 2020.

However, the approach of public sector banks (PSBs) stood out during the pandemic with their business rising by 66.5 per cent, according to credit bureau CIBIL data.

PSBs are offering personal loans at attractive rates compared to their peers. This is prompting consumers, who are facing financial hardship, to avail personal loans from PSBs.

The interest rate offered by PSBs like State Bank of India (SBI), Bank of Baroda and Bank of India hover around 8.9 per cent-10.50 per cent.

For private banks, the range is between 10.49 per cent and 12 per cent.

Finance companies offer loans at rates starting from 11 per cent to as high as 24 per cent.

CIBIL said consequently, the share of PSBs in personal loan origination volumes increased to 26.8 per cent in August 2020 from 9.6 per cent in August 2019.

Non-banking financial companies (NBFCs) are losing market share in loan originations.

It dropped to 16.8 per cent in August 2020 from 39.5 per cent during the same month last year.

Senior bankers said the strategy to grow personal loan business has been a well thought step.

The risk assessment and client selection has been stringent.

Most of these loans have been extended to the customers where credit history and track record are known.

Also, while extending personal loans to new customers, salaried and government employees are top priority, an executive with SBI said.

Caution has been the byword for lenders in the aftermath of the pandemic as economic disruption led to job losses and pay cuts.

August 2020 data shows that personal loan approval rates for both PSBs and private banks have remained almost unchanged over the last one year.

NBFCs and FinTechs, on the other hand, seem to have become conservative, the credit bureau said.

Lenders are currently faced with multiple challenges.

These challenges include re-aligning the distribution network to support social distancing, managing consumer demand, rebalancing operational workload, monitoring portfolio and ensuring health and safety of employees.

Lenders must proactively anticipate and be ready to respond to the changing market conditions and evolving consumer needs that will develop as the crisis progresses, CIBIL added.

Photograph: PTI Photo