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The festive season is here and with it, you are likely to make several purchases from e-commerce platforms, be it for yourself or for your friends and family. Choosing the right credit card for <keyword id="19957108" type="General" weightage="20" keywordseo="online-shopping" source="keywords">online shopping</keyword> can make a significant difference in how much you save and earn from your purchases. <keyword id="19953671" type="General" weightage="20" keywordseo="credit-cards" source="keywords">Credit cards</keyword> not only allow you to easily get products on credit, they can also make them cheaper thanks to cashback and reward points. You also get access to airport lounges, railway lounges, dining offers and more. In this post, we look at some of the <keyword id="23600028" type="General" weightage="100" keywordseo="best-credit-cards-for-online-shopping" source="Orion">best credit cards for online shopping</keyword> in India. <h2><keyword id="3294523" type="General" weightage="20" keywordseo="best-credit-cards" source="Orion">Best credit cards</keyword> for online shopping in India</h2><h3><keyword id="23600026" type="General" weightage="20" keywordseo="Amazon-Pay-ICICI" source="keywords">Amazon Pay ICICI</keyword> credit card</h3> <div type="image" title="Amazon Pay ICICI credit card" msid="114354421" hostid="261" caption="&amp;lt;p&amp;gt;Amazon Pay ICICI credit card&amp;lt;/p&amp;gt;"></div> The Amazon Pay ICICI Credit card is among the most popular co-branded credit cards, offered by ICICI Bank in partnership with e-commerce giant Amazon India. It’s great for those who regularly shop on Amazon, as it offers a 5% cashback on all purchases on the platform. Key Features: <ul><li>Cashback: Up to 5% cashback on Amazon purchases, and 2% cashback on other online shopping.</li><li>Additional cashback: Earn 2% cashback at partner stores, and 1% on all other spends.</li><li>No annual fee: Lifetime free credit card.</li><li>Fuel surcharge waiver: 1% fuel surcharge waiver across all petrol pumps.</li></ul> <div type="Article" hostid="261" msid="113123752" title="Here are the benefits you get with India’s most expensive credit card with a ₹3.54 lakh annual fee" mstype="2" mssubtype="0"></div> <h3>HDFC Millenia credit card</h3> <div type="image" title="HDFC Millenia credit card" msid="114354433" hostid="261" caption="&amp;lt;p&amp;gt;HDFC Millenia credit card&amp;lt;/p&amp;gt;"></div> The HDFC Millenia is a popular credit card from HDFC Bank and is among the most sought-after cards from the bank. This card offers good rewards on Amazon, Flipkart, Myntra and other online platforms. It is also good for utility bills and fuel spending. Key Features: <ul><li>Cashback: 5% cashback on Amazon, BookMyShow, Swiggy, Flipkart, Myntra and more. It offers 1% cashback on all other spends.</li><li>Lounge access: 1 complimentary lounge access per quarter.</li><li>Fuel surcharge waiver: 1% fuel surcharge waiver across all petrol pumps.</li></ul><h3>Flipkart Axis Bank credit card</h3> <div type="image" title="Flipkart Axis Bank credit card" msid="114354438" hostid="261" caption="&amp;lt;p&amp;gt;Flipkart Axis Bank credit card&amp;lt;/p&amp;gt;"></div> With Amazon partnering with ICICI Bank, Flipkart joined the race and partnered with Axis Bank to launch the Flipkart Axis Bank credit card. The card offers 5% cashback on Flipkart and Cleartrip. Key Features: <ul><li>Cashback: 5% cashback on Flipkart and Cleartrip, 4% on preferred partners and 1% on other spends. </li><li>Lounge access: 4 complimentary lounge access per year on spending ₹50,000 during the previous 3 months.</li><li>Fuel surcharge waiver: 1% fuel surcharge waiver across all petrol pumps.</li></ul> <div type="Article" hostid="261" msid="98090488" title="How to use credit card to make UPI payments" mstype="2" mssubtype="0"></div> <h3>Cashback SBI Card</h3> <div type="image" title="Cashback SBI credit card" msid="114354449" hostid="261" caption="&amp;lt;p&amp;gt;Cashback SBI credit card&amp;lt;/p&amp;gt;"></div> The Cashback SBI Card has quickly emerged as one of the most popular cards from the state-owned bank, beating its SimplyClick card, which was one of the preferred cards for online spending. The USP of this card is that it offers a flat 5% cashback on all online spending. Key Features: <ul><li>Cashback: 5% cashback on all online spends, without any merchant restrictions. It also offers 1% cashback on all offline transactions.</li><li>Fuel surcharge waiver: 1% fuel surcharge waiver across all petrol pumps.</li><li>Annual fee waiver: Fee waiver on spending ₹2 lakh in the preceding year.</li></ul><h3><keyword id="23600027" type="General" weightage="20" keywordseo="Axis-Bank-Ace" source="keywords">Axis Bank Ace</keyword> credit card</h3> <div type="image" title="Axis Bank Ace credit card" msid="114354458" hostid="261" caption="&amp;lt;p&amp;gt;Axis Bank Ace credit card&amp;lt;/p&amp;gt;"></div> The Axis Bank Ace credit card is another excellent card, especially for those looking for a card for bill payments, utility spending and more. It is also one of the few credit cards that can be added to Google Pay. Key Features: <ul><li>Cashback: 5% cashback on all bill payments, mobile recharges and DTH recharges via Google Pay. It also offers 4% Swiggy, Zomato and Ola.</li><li>Lounge access: 4 complimentary lounge access per year on spending ₹50,000 during the previous 3 months.</li><li>Fuel surcharge waiver: 1% fuel surcharge waiver across all petrol pumps.</li></ul> <div type="Article" hostid="261" msid="102133212" title="HDFC Bank and Swiggy launch co-branded credit card – cashback, offers and more" mstype="2" mssubtype="0"></div> <h3>American Express SmartEarn credit card</h3> <div type="image" title="American Express SmartEarn credit card" msid="114354467" hostid="261" caption="&amp;lt;p&amp;gt;American Express SmartEarn credit card&amp;lt;/p&amp;gt;"></div> While it is more challenging to get American Express cards than other cards on the list, getting your hands on the SmartEarn credit card is relatively easy compared to other cards offered by American Express. Key Features: <ul><li>Reward points: 10X membership reward points on Flipkart, Zomato, Myntra, Uber, Ajio and more. 5X membership reward points on every ₹50 spent on Amazon.</li><li>Monthly spends: Earn 500 membership reward points on spending ₹2,500 in a month on 10X reward point partners.</li><li>Annual fee waiver: Fee waiver on spending ₹40,000 in the preceding year.</li></ul>SEE ALSO: <a href="https://www.businessinsider.in/finance/news/here-are-the-benefits-you-get-with-indias-most-expensive-credit-card-with-a-3-54-lakh-annual-fee/articleshow/113123752.cms">Here are the benefits you get with India’s most expensive credit card with a ₹3.54 lakh annual fee</a> <a href="https://www.businessinsider.in/stock-market/news/bigger-they-are-harder-they-fall-a-look-at-how-the-countrys-biggest-ipos-have-fared/articleshow/114307997.cms">Bigger they are, harder they fall – A look at how the country’s biggest IPOs have fared</a> <a href="https://www.businessinsider.in/business/news/hdfc-bank-and-swiggy-launch-co-branded-credit-card-to-offer-discount-to-customers/articleshow/102133212.cms">HDFC Bank and Swiggy launch co-branded credit card – cashback, offers and more</a>

Best credit cards for online shopping this festive season

Imagine this. You have a younger sibling you’re mighty envious of. And why not? Unlike you, they seem to enjoy all the freedom and money in the world. They party like there’s no tomorrow, and here you are, stuck in a boring, ultra-disciplined but responsible routine that feels completely devoid of any independence, and mostly, funds. But of late, things are changing. This sibling is in massive trouble and just cannot escape the parent’s wrath anymore. Long story short, the party is over, and it is time to go back home. The rising defaults on this sibling’s part have now begun pulling the entire house down, thereby attracting the regulator’s ire. <h2>The Wild West of microfinance and unsecured loans</h2>It's hard to ignore the issues with microfinance and unsecured loans in India. Many saw them as a small gamble and ignored the rising defaults much like the younger siblings’ tantrums, and now they find themselves in hot waters. The skyrocketing instances of non-payments aren't a micro-issue anymore and are threatening the stability of the entire banking system. In the quarter ended September 30, 2024, 5 of India’s 8 largest private sector <keyword id="19934118" type="General" weightage="20" keywordseo="banks" source="keywords">banks</keyword> reported a steep rise in their bad loan book, mostly thanks to microfinance loans. Some banks, in a bid to strengthen their fortress against these <keyword id="142154" type="General" weightage="100" keywordseo="bad-loans" source="Orion">bad loans</keyword>, have significantly upped their provisions. For instance, <keyword id="46717" type="General" weightage="20" keywordseo="IndusInd-bank" source="Orion">IndusInd Bank</keyword> set aside Rs 525 crore during July and September 2024 to battle the menace of defaults on microfinance loans, which make up about 9% of its total loan book. See, banks rely heavily on their interest income, which they earn from advancing loans. Any loan where the borrower has not paid interest to the bank or defaulted for 90 days or more becomes bad, i.e., an <keyword id="79363" type="General" weightage="20" keywordseo="npa" source="Orion">NPA</keyword>, or non-performing asset for the bank. And who likes things going bad? Simply put, there has been a steep rise in three areas, much to the dislike of banks and MFIs (micro-finance institutions). But hey, it's mostly their doing! <ol><li>GNPA ratio (gross net performing assets): The quantum of non-performing assets a bank has in proportion to its total assets.</li><li>Provision: The amount banks set aside to take care of such NPAs.</li><li>Slippage ratio: The rate at which good girls go bad, or the speed at which good loans turn into NPAs</li></ol>But how are these plaguing the Indian banking sector? And what does the road ahead look like? We decode it for you. <h2> Microfinance: A not-so-micro-menace</h2>Microfinance loans were initially brought forth for low-income households and individuals, i.e. for those who might not generally have access to traditional ways of credit, like bank loans and more. They don’t require collateral or an asset to be pledged in lieu of the loan, making it a tad bit easier for borrowers. As of June 2024, the amount of outstanding loans in the microfinance industry stood at a staggering Rs 4,20,256 crore. Of this, NBFC-MFIs accounted for 40% and banks made for 33% of these. In 2022, <keyword id="30067" type="General" weightage="20" keywordseo="RBI" source="Orion">RBI</keyword>, in a bid to inspire some competition in this space, did something radical-they did away with the ceiling on how much interest MFIs could charge their customers. Previously, MFIs could add up to 12% to their cost of acquiring funds to determine the final interest rate chargeable to the consumer. So, assuming that Bank A incurs a 5% cost to acquire funds for further loaning, A could charge up to 17% interest from the end consumer. So, interest rates were in the hands of MFIs, and boy, did they have a gala time with it. Instead of spurring some healthy competition, as RBI expected, MFIs and banks went rogue and all guns blazing, competing for the title of “Who will charge the highest interest?” Recently, RBI banned 4 microfinance institutions (MFIs), namely Asirvad Micro Finance Limited, Arohan Financial Services Limited, DMI Finance Private Limited, and Navi Finserv, from disbursing loans effective October 21, 2024. Why? Because they were charging 14% extra interest over their original cost of funds. To maintain their loan books (and pockets), banks and NBFCs resorted to shady practices like netting off loans, which RBI has now advised MFIs against. Here, lenders allow borrowers to settle a previous outstanding loan by issuing them a new loan! As crazy as it sounds, it helped banks to report less of their total assets as NPAs, since the new credit would cover pending installments of the borrower’s previous loan. Then there was the issue of borrowers overleveraging, i.e. taking multiple loans using different IDs from various lenders and then failing to honor any of them. The consequence? Banks and NBFCs end up with massive NPAs. Data from credit bureaus suggests that over the last quarter, there was a 17.2% rise in the number of borrowers who had 5 or more active loans at the same time. <h2>Growth &gt; Caution</h2>It's an age-old tale unfolding yet again in India’s banking sector- Icarus flew too close to the sun and eventually, fell to its death. Between April and June 2024, NBFCs microfinance portfolio jumped by 2.7%. If you see this in terms of loan sources, microfinance loans issued by banks grew by 11.2% in Q1FY25. But the same portfolio in NBFCs swelled by almost double-23.9%. While most of these loans had an average ticket size between Rs 30,000-50,000, there was a sharp spike in the number of loans that had a ticket size of Rs 80,000 or more. Data suggests that as of March 2024, more than 12% of all microfinance borrowers had over 4 or more active loans. In dating parlance, this is a classic case of borrowers going polyamorous, minus the honesty and transparency. Not the best of situations, you'd agree! <h2>Will banks and NBFCs stand up to this stress?</h2>If their results for Q2FY25 are to be believed, NBFCs are not handling the pressure all that well. Or even slightly well. Only a few banks like Bank of Baroda (BoB), ICICI, and Indian Bank were up for the battle, even witnessing a decline in their loan delinquencies. Some others, like IndusInd Bank, saw their stock dip by a massive 16.2% over the last 5 days. Its slippages in the previous quarter burgeoned from Rs 15.3 billion in Q1FY25 to Rs 17.9 billion in Q2. As a result, the bank pushed a staggeringly high amount of money to create an NPA cushion for itself. While its management has highlighted its preference for secured lending, that was hardly reflected in its actions during the quarter, where growth in unsecured personal loans remained exceptionally high at over 7% on a QoQ basis. Turns out, only 44% of customers in IndusInd Banks’ microfinance loan portfolio were exclusive to it. The rest 47% were, you guessed it right-polyamorous! 27% had borrowed from another lender as well, apart from IndusInd Bank, while 20% were those who had outstanding loans with two other lenders, apart from IndusInd Bank. IndusInd Bank’s credit card segment did not miss the NPA bus and accounted for 7-8% of its GNPAs. Canara Bank’s total slippages during the previous quarter jumped to Rs 11.1 billion, up by 24.7% QoQ, and making up for 3.6% of its total loans. As for Bandhan Bank, its <keyword id="763994" type="General" weightage="20" keywordseo="Gross-NPA" source="Orion">gross NPA</keyword> for Q2FY25 inched up on a QoQ basis, up from 4.23% in Q1, to 4.68% in the second quarter. <keyword id="62152" type="General" weightage="20" keywordseo="IDFC-bank" source="Orion">IDFC Bank</keyword>’s heavy provisioning for its NPAs marred its profits significantly, causing its PAT (profit after tax) to dip by 73% on a YoY basis. Data from ICRA Analytics suggest that the AUM (asset under management) growth in microfinance loans and unsecured (personal and business) loans by the NBFCs will moderate to 10-12% and 19-21%, respectively, in FY2025 compared to 30% and 38%, in FY2024. Says A M Karthik, Senior Vice President &amp; Co-Group Head, Financial Sector Ratings, ICRA, “As bank funds constitute a larger share in the overall funding of NBFCs, a slower credit flow from banks to the NBFCs will compress their AUM growth. The NBFCs in unsecured and digital lending businesses shall face a higher squeeze in funding compared to others, and the unsecured lending space will continue to be a source of stress in the near term.” There has been uninhibited growth in unsecured loans, apart from just the microfinance segment. For instance, Axis Bank’s gross slippages jumped by Rs 4,443 crore, largely thanks to its unsecured business. The same is the case with Yes Bank, which saw 35–40% of its retail slippages emerging from the unsecured loan portfolio. Kotak Mahindra Bank was also quick to follow Yes Bank’s suit, with around 35%-40% of its slippages coming from credit cards. <h2>How is the road ahead?</h2>While RBI has just cracked its whip and served a warning at the moment, experts at Morgan Stanley believe that more changes (read regulatory lashes) are underway. Moreover, with both festive and wedding seasons underway in our country, unsecured lending might pick up momentum, much to the disdain of the calibrated approach banks have been taking towards it so far. But if the situation doesn't improve, RBI will not waste any time in becoming the typical tyrannical Bollywood headmaster who runs his dominion with an iron fist and takes things (and ceiling rates) into their own hands. However, that's a story for another day.

Is the lending party over? The dangerous tango of Indian banks with microfinance and unsecured loans

<div type="image" title="The RBI has cracked the regulatory whip on NBFCs and banks, who&amp;#39;ve been pushing microfinance and unsecured loans aggressively to grow their loan books." agency="ANI" msid="114778648" hostid="261" caption="&amp;lt;p&amp;gt;The RBI has cracked the regulatory whip on NBFCs and banks, who&amp;#39;ve been pushing microfinance and unsecured loans aggressively to grow their loan books.&amp;lt;/p&amp;gt;"></div> Imagine this. You have a younger sibling you’re mighty envious of. And why not? Unlike you, they seem to enjoy all the freedom and money in the world. They party like there’s no tomorrow, and here you are, stuck in a boring, ultra-disciplined but responsible routine that feels completely devoid of any independence, and mostly, funds. But of late, things are changing. This sibling is in massive trouble and just cannot escape the parent’s wrath anymore. Long story short, the party is over, and it is time to go back home. The rising defaults on this sibling’s part have now begun pulling the entire house down, thereby attracting the regulator’s ire. <h2>The Wild West of <keyword id="113684" type="General" weightage="20" keywordseo="microfinance" source="Orion">microfinance</keyword> and unsecured loans</h2>It's hard to ignore the issues with microfinance and unsecured loans in India. Many saw them as a small gamble and ignored the rising defaults much like the younger siblings’ tantrums, and now they find themselves in hot waters. The skyrocketing instances of non-payments aren't a micro-issue anymore and are threatening the stability of the entire banking system. In the quarter ended September 30, 2024, 5 of India’s 8 largest private sector <keyword id="19934118" type="General" weightage="20" keywordseo="banks" source="keywords">banks</keyword> reported a steep rise in their bad loan book, mostly thanks to microfinance loans. Some banks, in a bid to strengthen their fortress against these <keyword id="142154" type="General" weightage="100" keywordseo="bad-loans" source="Orion">bad loans</keyword>, have significantly upped their provisions. For instance, IndusInd Bank set aside Rs 525 crore during July and September 2024 to battle the menace of defaults on microfinance loans, which make up about 9% of its total loan book. See, banks rely heavily on their interest income, which they earn from advancing loans. Any loan where the borrower has not paid interest to the bank or defaulted for 90 days or more becomes bad, i.e. an NPA, or non-performing asset for the bank. And who likes things going bad? Simply put, there has been a steep rise in three areas, much to the dislike of banks and MFIs (micro-finance institutions). But hey, it's mostly their doing! <ol><li>GNPA ratio (gross net performing assets): The quantum of non-performing assets a bank has in proportion to its total assets.</li><li>Provision: The amount banks set aside to take care of such NPAs.</li><li>Slippage ratio: The rate at which good girls go bad, or the speed at which good loans turn into NPAs</li></ol>But how are these plaguing the Indian banking sector? And what does the road ahead look like? We decode it for you. <h2> Microfinance: A not-so-micro-menace</h2>Microfinance loans were initially brought forth for low-income households and individuals i.e. for those who might not generally have access to traditional ways of credit, like bank loans and more. They don’t require collateral or an asset to be pledged in lieu of the loan, making it a tad bit easier for borrowers. As of June 2024, the amount of outstanding loans in the microfinance industry stood at a staggering Rs 4,20,256 crore. Of this, NBFC-MFIs accounted for 40% and banks made for 33% of these. In 2022, RBI, in a bid to inspire some competition in this space, did something radical-they did away with the ceiling on how much interest MFIs could charge their customers. Previously, MFIs could add up to 12% to their cost of acquiring funds to determine the final interest rate chargeable to the consumer. So, assuming that Bank A incurs a 5% cost to acquire funds for further loaning, A could charge up to 17% interest from the end consumer. So, interest rates were in the hands of MFIs, and boy, did they have a gala time with it. Instead of spurring some healthy competition, as RBI expected, MFIs and banks went rogue and all guns blazing, competing for the title of “Who will charge the highest interest?” Recently, RBI banned 4 microfinance institutions (MFIs), namely Asirvad Micro Finance Limited, Arohan Financial Services Limited, DMI Finance Private Limited, and <keyword id="20117932" type="General" weightage="20" keywordseo="navi-finserv" source="keywords">Navi Finserv</keyword> from disbursing loans effective October 21, 2024. Why? Because they were charging 14% extra interest over their original cost of funds. To maintain their loan books (and pockets), banks and NBFCs resorted to shady practices like netting off loans, which RBI has now advised MFIs against. Here, lenders allow borrowers to settle a previous outstanding loan by issuing them a new loan! As crazy as it sounds, it helped banks to report less of their total assets as NPAs, since the new credit would cover pending instalments of the borrower’s previous loan. Then there was the issue of borrowers overleveraging, i.e. taking multiple loans using different IDs from various lenders and then failing to honour any of them. The consequence? Banks and NBFCs end up with massive NPAs. Data from credit bureaus suggests that over the last quarter, there was a 17.2% rise in the number of borrowers who had 5 or more active loans at the same time. <h2>Growth &gt; Caution</h2>It's an age-old tale unfolding yet again in India’s banking sector- Icarus flew too close to the sun and eventually, fell to its death. Between April and June 2024, NBFCs microfinance portfolio jumped by 2.7%. If you see this in terms of loan sources, microfinance loans issued by banks grew by 11.2% in Q1FY25. But the same portfolio in NBFCs swelled by almost double-23.9%. While most of these loans had an average ticket size between Rs 30,000-50,000, there was a sharp spike in the number of loans that had a ticket size of Rs 80,000 or more. Data suggests that as of March 2024, more than 12% of all microfinance borrowers had over 4 or more active loans. In dating parlance, this is a classic case of borrowers going polyamorous, minus the honesty and transparency. Not the best of situations, you'd agree! <h2>Will banks and NBFCs stand up to this stress?</h2>If their results for Q2FY25 are to be believed, NBFCs are not handling the pressure all that well. Or even slightly well. Only a few banks like Bank of Baroda (BoB), ICICI, and Indian Bank were up for the battle, even witnessing a decline in their loan delinquencies. Some others, like IndusInd Bank, saw their stock dip by a massive 16.2% over the last 5 days. Its slippages in the previous quarter burgeoned from Rs 15.3 billion in Q1FY25 to Rs 17.9 billion in Q2. As a result, the bank pushed a staggeringly high amount of money to create an NPA cushion for itself. While its management has highlighted its preference for secured lending, that was hardly reflected in its actions during the quarter, where growth in unsecured personal loans remained exceptionally high at over 7% on a QoQ basis. Turns out, only 44% of customers in IndusInd Banks’ microfinance loan portfolio were exclusive to it. The rest 47% were, you guessed it right-polyamorous! 27% had borrowed from another lender as well, apart from IndusInd Bank, while 20% were those who had outstanding loans with two other lenders, apart from IndusInd Bank. IndusInd Bank’s credit card segment did not miss the NPA bus and accounted for 7-8% of its GNPAs. Canara Bank’s total slippages during the previous quarter jumped to Rs 11.1 billion, up by 24.7% QoQ, and making up for 3.6% of its total loans. As for Bandhan Bank, its gross NPA for Q2FY25 inched up on a QoQ basis, up from 4.23% in Q1, to 4.68% in the second quarter. IDFC Bank’s heavy provisioning for its NPAs marred its profits significantly, causing its PAT (profit after tax) to dip by 73% on a YoY basis. Data from ICRA Analytics suggest that the AUM (asset under management) growth in microfinance loans and unsecured (personal and business) loans by the NBFCs will moderate to 10-12% and 19-21%, respectively, in FY2025 compared to 30% and 38%, in FY2024. Says A M Karthik, Senior Vice President &amp; Co-Group Head, Financial Sector Ratings, ICRA, “As bank funds constitute a larger share in the overall funding of NBFCs, a slower credit flow from banks to the NBFCs will compress their AUM growth. The NBFCs in unsecured and digital lending businesses shall face a higher squeeze in funding compared to others, and the unsecured lending space will continue to be a source of stress in the near term.” There has been uninhibited growth in <keyword id="6051027" type="General" weightage="20" keywordseo="Unsecured-loan" source="Orion">unsecured loan</keyword>s, apart from just the microfinance segment. For instance, Axis Bank’s gross slippages jumped by Rs 4,443 crore, largely thanks to its unsecured business. The same is the case with Yes Bank, which saw 35–40% of its retail slippages emerging from the unsecured loan portfolio. <keyword id="6376194" type="General" weightage="20" keywordseo="kotak-mahindra" source="Orion">Kotak Mahindra</keyword> Bank was also quick to follow Yes Bank’s suit, with around 35%-40% of its slippages coming from credit cards. <h2>How is the road ahead?</h2>While RBI has just cracked its whip and served a warning at the moment, experts at Morgan Stanley believe that more changes (read regulatory lashes) are underway. Moreover, with both festive and wedding seasons underway in our country, unsecured lending might pick up momentum, much to the disdain of the calibrated approach banks have been taking towards it so far. But if the situation doesn't improve, RBI will not waste any time in becoming the typical tyrannical <keyword id="19897820" type="General" weightage="20" keywordseo="bollywood" source="keywords">Bollywood</keyword> headmaster who runs his dominion with an iron fist. However, that's a story for another day. Do you have a topic in mind you'd want a simpler explanation for, or insights or personal experience to share on personal finance and more? Contact us at businessinsider@timesinternet.in.

Simply Put: Is the lending party over? The dangerous tango of Indian banks with microfinance and unsecured loans

<ul><li>Three banks would be most impacted by the move as their capital ratios would be affected by 30-85 basis points.</li><li>Capital buffers will have to be further strengthened by banks if they want to lend to consumers for unsecured loans.</li><li>Borrowers with more than five personal loans rose from 1% in 2018 to 7.7% in March 2023, as per a report.</li></ul> Shares of <keyword id="116253" type="General" weightage="50" keywordseo="sbi-cards" source="Orion">SBI Cards</keyword>, RBL Bank, <keyword id="6357149" type="General" weightage="50" keywordseo="hdfc-bank" source="Orion">HDFC Bank</keyword> and <keyword id="6653" type="General" weightage="50" keywordseo="icici-bank" source="Orion">ICICI Bank</keyword> are expected to come under pressure after the Reserve Bank of India asked lenders on Thursday to set aside more capital for consumer loans. This move is expected to impact the capital buffers of these banks. According to analysts, these banks would be most impacted by the move as their capital ratios would be affected by 30-85 basis points. For banks the first line of defense against bad loans is CET Tier 1 capital or Common Equity Tier 1 capital (CET1), which is the highest quality of regulatory capital, as it absorbs losses immediately when they occur. According to Motilal Oswal Financial Services, the CET 1 impact would be maximum for RBL/HDFC Bank/ICICI Bank at 84 basis points/72 basis points/64 basis points. Among non banks, SBI Cards would be the most vulnerable with a 416bp impact on capital ratios. Capital buffers will have to be further strengthened by banks if they want to lend to consumers for unsecured loans. If a bank had to set aside say ₹20 for loans, it will now have to set aside 25% more for every unsecured loan it issues. Not just this the banks will have to set aside more capital if they want to lend to shadow banks or non banking financial institutions as well. When cost of capital increases, so will lending rates. In the years after the pandemic broke, unsecured personal loans to retail borrowers have been on a steady rise. Not just banks but even non banks have been merrily issuing such loans to borrowers, and in many cases these borrowers have multiple such loans used for consumption. From 12-14% these loans are now growing at 30% rate. The central bank has cracked down on some non banks for not adhering to norms while underwriting such small ticket loans. The red flags have been flying high for a while now. According to proprietary research done by UBS, borrowers with more than five personal loans rose from 1% in 2018 to 7.7% in March 2023. New disbursement of personal loans to borrowers with weaker credit profiles accounted for 22% of disbursements. Of all banks, UBS was of the view that state-owned banks and non banking financial companies had a much higher share of weak borrowers compared to private banks. Analysts believe that pressure on net interest margins and higher credit costs to impact earnings of banks and shadow banks over FY24 and FY25. Paytm, a fintech company, has recently built a large loan portfolio which is mostly comprised of personal loans. With the <keyword id="30067" type="General" weightage="80" keywordseo="rbi" source="Orion">RBI</keyword> cracking down on these loans, the loan growth will be impacted for Paytm too. Deepak Shenoy, CEO of Capital Mind, took to social media to explain the impact, “See how it affects SBI cards: SBI Cards had credit card receivables of ₹ 45,000 crore with 23% capital adequacy ratio (CAR). So ₹10,500 cr in capital (23% of ₹45Kcr). Increase risk weight to 125% means ₹45K cr=₹56K cr risk weighted assets.” Shenoy explains that if “SBI Cards wants to grow, and keep high CARs (min is 15% I think?) they’ll need to raise capital and dilute. Which means for the same profit = higher capital. Means lower ROEs.” ALSO READ: <a href="https://www.businessinsider.in/stock-market/markets/news/foreign-investors-continue-to-bet-big-on-banks-and-nibbling-on-small-and-mid-cap-stocks/articleshow/104462273.cms" data-type="tilCustomLink" target="_blank">Borrowers with multiple personal loans a big risk to profitability of banks and NBFCs</a>

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