ICICI Bank puts its small-ticket personal loans portfolio on the block
February 11. 2008
ICICI Bank puts MUMBAI: ICICI Bank is understood to have sounded off a couple of foreign banks to buy out its Rs 2,000-crore small-ticket personal loans (STPL) portfolio, it is reliably learnt.
Foreign banks such as Deutsche Bank, Standard Chartered and Barclays are understood to have been approached by the bank to pick the portfolio, sources said. ICICI Bank has decided to exit this ‘high-risk’ space a couple of months ago owing to the rising defaults in the segment.
Currently, ICICI’s collection agency is handling the portfolio until it identifies a suitable buyer, it is learnt. The move will help ICICI Bank mitigate the losses on the portfolio, sources said. The bank’s total STPL portfolio size is estimated to be around Rs 3,000 crore, of which the bank intends to sell Rs 2,000 crore, sources added.
When contacted by ET, ICICI officials declined to comment. However, a senior official in the bank said on condition of anonymity, “The purpose of these loans was not clear and we had to deal with a high default rate. If we get suitable proposals for the portfolio, we will surely consider it.” ICICI Bank is also adopting credit-scoring methods for appraising borrowers at present.
The bank is focusing heavily on microfinancing where the loans offered are picked up for a clear developmental purpose, the official said. By acquiring the portfolio, new entrants in the retail banking space will be able secure a foothold in the market. Almost 70% customers in the portfolio will be good customers and it will enable the player to sell other products to the same customers, sources added.
ICICI Bank had moved into this segment a couple of years ago offering small-ticket loans of around Rs 10,000-30,000. Rising defaults forced the bank to tighten its credit filters, sources said. In fact, sources told ET that the loss rate on the STPL portfolio is around 20-25%. Several banks have got more cautious with lending to low-income earners in urban areas. Industry sources said new entrants in this segment would be keen to pick up the portfolio to gain a foothold in the market.
Interest rates on STPL were as high as 48% which were later scaled down due to RBI intervention to 18-25% last year. Banks are now focusing on medium ticket personal loan (MTPL), enhancing the ticket size from a minimum of Rs 10,000-20,000 to a maximum of Rs 5 lakh for salaried individuals. Interest rates on these loans are similar to that of credit cards at 24-30%. Industry sources said the credit worthiness of customers in the MTPL bracket would be more sound that compared with the low-income group strata which records marginal income increase every year.
Kala Vijayraghavan & Lijee Philip, TNN
Source: The Economic Times
http://economictimes.indiatimes.com/News/News_By_Industry/Banking_Finance_/
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