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<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

Mumbai: The rupee fell sharply by 15 paise against the US dollar to 83.44 in early trade on Wednesday amid muted trends in the domestic equity markets. However, a decline in the dollar index and a marginal fall in the Brent crude index prevented further losses in the domestic unit, according to experts. At the interbank foreign exchange, the local unit opened at 84.38 -- down 9 paise from its previous close -- and then slid further to 84.44, registering a decline of 15 paise from its previous close. On Tuesday, the rupee pared its intra-day losses to settle flat at 84.29 against the US dollar. "The <keyword id="24182640" type="General" weightage="20" keywordseo="Indian-banking-liquidity" source="keywords">Indian banking liquidity</keyword> fell into deficit as industry players paid Rs 1.6-1.8 lakh crore as GST payment. This was after two months that liquidity has fallen into a deficit as the RBI also intervened into forex markets to defend the rupee weighing on liquidity conditions," Anil Kumar Bhansali, Head of Treasury and Executive Director, Finrex Treasury Advisors LLP, said. "The rupee may be in the broad range of 84.00 to 84.50 in the near term as markets await a slew of data from the US this evening," Bhansali added. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was down 0.15 per cent to 106.84. Brent crude, the global oil benchmark, was marginally down 0.10 per cent to USD 72.74 per barrel in futures trade. In the domestic equity market, the 30-share equity benchmark Sensex was trading 46.69 points lower, or 0.06 per cent, at 79,957.57 points. <keyword id="19932515" type="General" weightage="20" keywordseo="Foreign-Institutional-Investors" source="keywords">Foreign Institutional Investors</keyword> (FIIs) were net buyers in the capital markets on Tuesday, purchasing shares worth Rs 1,157.70 crore, according to exchange data.

Rupee falls 15 paise to 83.44 against US dollar in early trade

Mumbai: The rupee slipped 1 paisa to an all-time low of 84.40 against the US dollar in early trade on Wednesday, as persistent <keyword id="20520117" type="General" weightage="20" keywordseo="foreign-fund-outflows" source="keywords">foreign fund outflows</keyword> and a muted trend in domestic equities weighed on the local unit. Forex traders said the USDINR pair has shown significant volatility in recent sessions, with the rupee inching closer to its all-time low of 84.40. This downward pressure is largely driven by global factors, particularly the Dollar Index's strengthening. At the interbank foreign exchange, the rupee opened at 84.40 against the greenback, registering a fall of 1 paisa over its previous close. On Tuesday, the rupee fell 1 paisa to a new lifetime low of 84.39 against the US dollar. "It appears that the rupee has established support around the current levels, with depreciation limited near 84.50," CR Forex Advisors MD Amit Pabari said. Pabari further added that the RBI stands tall as the depreciation in the rupee seems to be limited as the <keyword id="19899810" type="General" weightage="100" keywordseo="Reserve-Bank-of-India" source="keywords" meta.keywordsubtype="org" meta.entityname="Reserve Bank of India" meta.hostid="261" meta.entityid="Reserve Bank of India">Reserve Bank of India</keyword> (RBI) continues to sell the dollars to protect the sharp depreciation. "For the 5th consecutive week, India's forex reserves declined, possibly due to RBI selling the dollars. Currently, the forex reserves of India stand at USD 682 billion down from the recent all-time high of USD 704 billion," he said. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading lower by 0.04 per cent at 105.98. Brent crude, the global oil benchmark, rose 0.25 per cent to USD 72.07 per barrel in futures trade. On the domestic equity market front, Sensex was trading 210.66 points, or 0.27 per cent lower, to 78,464.52 points. The Nifty fell 100.45 points, or 0.42 per cent, to 23,783.00 points. Foreign Institutional Investors (FIIs) were net sellers in the capital markets on Tuesday, as they offloaded shares worth Rs 3,024.31 crore, according to exchange data. On the macroeconomic front, retail inflation breached the Reserve Bank's upper tolerance level, soaring to a 14-month high of 6.21 per cent in October mainly on account of rising food prices. Inflation based on the consumer price index (CPI) was 5.49 per cent in September and 4.87 per cent in the year-ago month. India's industrial production expanded by 3.1 per cent in September after recording a contraction in the preceding month, as all three major segments -- mining, manufacturing, and power generation -- showed improvement. However, the growth in the Index of Industrial Production (IIP) during the month was lower than 6.4 per cent registered in September 2023.

Rupee falls 1 paisa to all-time low of 84.40 against US dollar in early trade

<div type="image" title="Data from RBI suggests that the outstanding amount on gold loans has swelled from Rs 85,009 crore in September 2022 to Rs 1,47,081 crore in September 2024." msid="115250619" hostid="261" sizebytes="118350" caption="&amp;lt;p&amp;gt;Data from RBI suggests that the outstanding amount on gold loans has swelled from Rs 85,009 crore in September 2022 to Rs 1,47,081 crore in September 2024.&amp;lt;/p&amp;gt;"></div> “Ye le beta, humare khaandani sone ke gehne. Ise girvi rakhva de, shayad kuch paise aa jaye ghar main.” How many times have we seen similar dialogues repeat itself in Bollywood films of the 70s and 80s—abject poverty and a frail-looking old mother pleading to her son to pawn the family’s heirloom <keyword id="18712" type="General" weightage="20" keywordseo="gold" source="Orion">gold</keyword> ornaments to a jeweller, all to get a few bucks? Well, if you’d ask that son in 2024, he’d rather hit the loan button on his <keyword id="19977340" type="General" weightage="20" keywordseo="demat" source="keywords">Demat</keyword> account than pawn his mother’s gold jewellery. Given how Indians are rapidly resorting to taking loans against their investments in shares and mutual funds, these might as well be a cherished family heirloom in today’s time. Fair warning though; it's not as if gold and loans against it are going down in India’s lending scene. It's very much the opposite, shining brighter than ever! The secured loan category is having its time in the spotlight, and people are certainly looking beyond land and property to get their hands on some extra monies! But what is funding the steep rise behind these loans? And are they as failsafe and secure as they’re made out to be? We decode for you in this week’s Simply Put. <h2>The great Indian pawning party</h2>Pawning one’s gold has been, by far, the OG Indian financial move to get a loan. That continues well into 2024, and apparently, more so when India decides to wed and celebrate! Data from <keyword id="19899808" type="General" weightage="20" keywordseo="rbi" source="keywords">RBI</keyword> suggests that the outstanding amount on gold loans has swelled from Rs 85,009 crore in September 2022 to Rs 1,47,081 crore in September 2024. It looks like Gold took the motto of rise and shine too seriously! Table 1: Growth in gold loans <table style="border-width: initial; border-style: none; table-layout: fixed; width: 468pt;" class="redcator-table-advance"></colgroup><tbody><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Year </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">Amount (In Rs crore) </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">September 2022 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">85,009 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">March 2023 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">89,370 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">September 2023 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">97,426 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">March 2024 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">1,02,562 </td></tr><tr><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">September 2024 </td><td style="border-left:solid #000000 1pt;border-right:solid #000000 1pt;border-bottom:solid #000000 1pt;border-top:solid #000000 1pt;vertical-align:top;padding:5pt 5pt 5pt 5pt;overflow:hidden;overflow-wrap:break-word;">1,47,081 </td></tr></tbody><tbody></tbody><tbody></tbody><tbody></tbody><tbody></tbody></table> Source: RBI data While the world continues to be riled up in multiple geopolitical crises in 2024, gold has been making merry of these tough times. Thus far this year, domestic gold prices have grown by 23%, outperforming benchmark indices like Nifty and Sensex by a mile, which have gone up by 9.85% and 8.86%, respectively. The growth in gold loan disbursal rates month on month this year could also put Nifty and Sensex’s growth to shame. In just September 2024, gold loans grew an astounding 51%, up from 40.9% in August, 30.5% in June, and just 14.8% in March. <h2>Hey, wait up for me, says <keyword id="23953567" type="General" weightage="20" keywordseo="las" source="keywords">LAS</keyword></h2>In lockstep with the elder, gold loan sibling, advances against shares and bonds have also been inching up since 2022. Data from RBI (Reserve Bank of India) notes that as of September 2022, the outstanding quantum of loans that were taken against shares (LAS) and bonds stood at Rs 7,397.94 crores. This inched up to Rs 7,764 crore in September 2023. Come 2024, and it looked like this was LAS’ time to shine. Loans swiftly skyrocketed, with outstanding loans in this category going up from Rs 8,492 crore in March 2022 to a staggering Rs 9,546 crore at the end of September 2024. Naturally, the smoke of LAS has its fire in the record inflows that Indians are pouring into the stock market and mutual funds month on month. Per AMFI (<keyword id="20090034" type="General" weightage="20" keywordseo="association-of-mutual-funds" source="keywords">Association of Mutual Funds</keyword> in India), the net AUM (assets under management) of India’s mutual fund industry grew to Rs 67,25,614.61 crores in October 2024, up from Rs 67,09,259.24 crores in September 2024. Even the number of retail mutual fund folios, which include equity, hybrid, and solution-oriented mutual funds, burgeoned to 17,23,52,296 in October, as compared to 16,81,61,366 in September. The same goes for stock investments in India, where the number of new demat accounts that are added every month just simply refuses to climb down. As of last month, total demat accounts in the country stood at 17.9 crore, which is more than the entire population of full-fledged nations like Japan (12.45 crore), Russia (14.38 crore), and Bangladesh (17.3 crore). In fact, since February this year, the monthly growth of LAS has been hitting double digits. From 11.3% in March to 21.6% in May to 26.8% in August, growth in LAS has been exceptional, hitting 22.9% in September this year. For context, monthly growth in the LAS segment was at a mere 5% in September 2023. <h2>What's driving the growth?</h2>It's a win-win for both the bank and the customer. Customers love them because LAS is available at a lower interest rate compared to unsecured personal loans. You can get a loan at an interest rate of anywhere between 9 and 12% by pledging your gold, MF units, or shares. Compare this to over 10-28% rates, which is the range where unsecured personal loans charge interest. Banks love <keyword id="827883" type="General" weightage="100" keywordseo="secured-loans" source="Orion">secured loans</keyword> since they are well-secured. In case you default on paying back, the bank can sell off your gold, shares, or mutual fund units to recover the amount. This takes a lot of stress off the banks, which are already dealing with secured loans’ riskier sibling-unsecured lending. High NPAs (non-performing assets) and non-payments in the unsecured borrowing space have already put RBI on red alert, which is why the apex bank is tightening the screws on unsecured lending, which was well on its way to becoming a ticking time bomb. As a result, credit growth has moderated to 12.8% YoY in October, as against the 19.3% rise recorded in the year-ago period. Yet it's not like the banks won't feel the heat. Analysts at Nomura note that personal loan delinquencies in India that have been overdue by over 90 days rose to 5.1% in the last financial year, as opposed to just 3.9% in the year prior. <h2>How does it work?</h2>Both these loans work on a similar principle: Your loan amount is equal to a certain percentage of the actual market value of your asset. This is known as the <keyword id="20051485" type="General" weightage="20" keywordseo="ltv" source="keywords">LTV</keyword> (loan-to-value ratio). In the case of gold and debt mutual funds, RBI mandates that this LTV be about 75-80%. So, for every Rs 100 of gold or debt mutual fund unit you pledge, your maximum loan amount cannot exceed Rs 80. If you pledge gold, which has a market value of Rs 10 lakh, you can take a loan of up to Rs 8,00,000. In the case of shares and mutual fund units, this limit is set at 50%. So, your shares worth Rs 5,00,000 can only get you a loan worth Rs 2,50,000. But the bright side? You can continue earning returns on your investments and pay interest only on the amount you use, since this loan works as an overdraft facility. <h2>Super safe, you say?</h2>Interest rates on both of these loans are very much dependent on the market value of the asset, which wildly fluctuates on a day-to-day basis. So, in case the value of your asset falls, you’ll have to keep a margin or more of the same asset in order to continue with the loan and maintain the LTV balance. Failure to do so could mean the bank can even sell off your asset. Says financial planner Nema Chaya Buch. “Yes, LAS offers easy availability of funds since these loans come with a lower interest rate as compared to personal loans. Also, you continue to earn average returns of 10–13% on your equity investments. But the downside is, in case of emergency, those pledged securities cannot be sold. Also, if the equity market goes down, then the bank may ask for additional collateral. Raghvendra Nath, MD, Ladderup Wealth Management notes that taking a LAS is best when the value of your securities has appreciated significantly. “This allows you to maximize the loan amount based on your collateral while also addressing financial needs without having to liquidate your investment portfolio. However, there are notable disadvantages to consider. The market risk is significant; a substantial decline in market value could lead to margin calls, which may incur fees and charges if there are delays or prepayments, ultimately increasing the effective cost of borrowing. Furthermore, failure to make timely payments could result in the loss of your assets.”. Umesh Mohanan, ED &amp; CEO, of Indel Money, cautions that one should have a sufficient quantity of gold to get the loan amount one wants. "According to the current RBI rules, the loan applicant/borrower can draw up to 75% of the total market value of the collateral/gold jewellery. So, always carry a sufficient quantity of gold based on one’s loan requirement. “The most important thing is that the valuation of the gold depends on the purity of the gold. If the borrower pledges gold with higher purity, such as 24 carats or 22 carats, he will get the maximum loan amount," he adds.

Simply Put: Secured Loans 2.0 — why more and more Indians are turning to gold, shares and mutual funds to get loans

The <keyword id="19949639" type="General" weightage="100" keywordseo="rupee" source="keywords">rupee</keyword> consolidated in a narrow range and <keyword id="20220719" type="General" weightage="20" keywordseo="depreciated" source="keywords">depreciated</keyword> 3 paise to close at its all-time low of 83.66 (provisional) against the US <keyword id="19904292" type="General" weightage="20" keywordseo="dollar" source="keywords">dollar</keyword> on Friday, weighed down by strong American currency and muted trend in domestic equities. <keyword id="19950258" type="General" weightage="20" keywordseo="forex" source="keywords">Forex</keyword> <keyword id="19993499" type="General" weightage="20" keywordseo="traders" source="keywords">traders</keyword> said weak domestic markets and elevated <keyword id="19900090" type="General" weightage="20" keywordseo="oil-prices" source="keywords">oil prices</keyword> pressured the rupee, however, likely <keyword id="19899810" type="General" weightage="20" keywordseo="reserve-bank-of-india" source="keywords">Reserve Bank of India</keyword> (<keyword id="19899808" type="General" weightage="20" keywordseo="RBI" source="keywords">RBI</keyword>) intervention prevented a sharp fall in the domestic unit. At the interbank foreign exchange market, the local unit opened at 83.64, and touched an intra-day high of 83.60 and a low of 83.66 against the dollar during the trading session. It finally settled at an all-time low level of 83.66 (provisional) against the American currency, registering a loss of 3 paise from its previous close. On Thursday, the rupee depreciated 5 paise and settled at a new low of 83.63 against the US dollar. "We expect the rupee to trade with a slight negative bias on weak global markets and a strength in the US Dollar. Weak Asian and European currencies may also weigh on the rupee," Anuj Choudhary — Research Analyst at Sharekhan by BNP Paribas — said. Choudhary said Foreign Institutional Investors (FIIs) inflows and any intervention by the RBI may support the rupee at lower levels. "USDINR spot price is expected to trade in a range of Rs 83.40 to Rs 83.90," he said. Meanwhile, the dollar index, which gauges the greenback's strength against a basket of six currencies, was trading higher by 0.16 per cent at 104.33. Brent crude futures, the global oil benchmark, were trading marginally lower by 0.07 per cent at USD 85.05 per barrel. In the domestic equity market, the 30-share BSE Sensex tumbled 738.81 points to settle at 80,604.65 and Nifty dropped 269.95 points to 24,530.90. Meanwhile, the Asian currencies were all down after a fall in European currencies as the European Central Bank (ECB) kept rates unchanged in its meeting with a possibility of a cut in September, traders said. FIIs were net buyers in the capital markets on Thursday as they purchased shares worth Rs 5,483.63 crore, according to exchange data.

Rupee falls 3 paise to close at all-time low of 83.66 against US dollar

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

Dear readers, As we approach yet another weekend, here are some key developments across various sectors. Nvidia has surpassed Apple to become the world’s largest company, driven by the AI boom. Meanwhile, the US Federal Reserve cut interest rates, by 25 basis points to 4.75%, the second such reduction in 2024. In the workplace, Gen Z’s approach to mental health got attention, with one employee taking a week off after a breakup. Additionally, Indian banks are expecting steady growth, despite challenges in unsecured lending. Read on for all the details! <h2>Top stories from the week </h2> Indian banks to have steady growth in earnings over next 3-4 years, fees from unsecured lending may dip, notes Jefferies report Jefferies forecasts steady earnings growth for Indian banks over the next 3–4 years, with a 13% annual loan growth rate. However, a decline in unsecured lending could reduce fee income. While net interest income is expected to grow at 12%, challenges such as rising defaults and a potential dip in rate cuts could affect profitability. Despite this, banks’ return on equity and assets remain promising. <a href="https://www.businessinsider.in/finance/news/indian-banks-to-have-steady-growth-in-earning-over-next-3-4-years-fees-from-unsecured-lending-may-dip-notes-jefferies-report/articleshow/115048179.cms" data-type="tilCustomLink" target="_blank">Read more</a> Nvidia becomes world’s largest company amid AI boom, surpasses Apple in the race Nvidia has surpassed Apple to become the world’s largest company by market capitalization, driven by the AI boom. The company’s strong performance is fueled by surging demand for its chips used in AI technologies. With a market cap hitting $3.43 trillion, Nvidia continues to dominate the AI hardware sector, powering data centres and AI research. The company’s revenue growth of 122% YoY further cements its leadership in the AI space. <a href="https://www.businessinsider.in/business/news/nvidia-becomes-worlds-largest-company-amid-ai-boom-surpasses-apple-in-the-race/articleshow/115003223.cms" data-type="tilCustomLink" target="_blank">Read more</a> ‘He had a breakup and took a one-week leave’: Manager shares about his Gen-Z employee, internet reacts A manager’s tweet about granting a Gen Z employee a week off for a breakup sparked widespread debate. While the manager expressed frustration over project delays, internet users defended the employee’s mental health needs, criticizing the manager’s lack of empathy. Some supported the manager’s view, pointing out generational differences in work culture. The incident went viral, furthering discussions about Gen Z’s unique workplace expectations. <a href="https://www.businessinsider.in/careers/news/he-had-a-breakup-and-took-a-one-week-leave-manager-shares-about-his-gen-z-employee-internet-reacts/articleshow/115041747.cms" data-type="tilCustomLink" target="_blank">Read more</a> US Fed cuts interest rates by 25 bps, Powell notes Trump’s victory to have no impact on policy decisions The US Federal Reserve has cut interest rates by 25 basis points to 4.75%, the second such reduction in 2024. Fed Chairman Jerome Powell emphasized the Fed’s independence despite Trump’s criticism and suggested that the economic outlook remains uncertain, though the Fed is focused on inflation targets. Trump’s policies may lead to higher inflation, adding complexity to the Fed’s efforts to stabilize prices. Experts anticipate that bond yields will stabilize, benefiting emerging markets like India. <a href="https://www.businessinsider.in/finance/news/us-fed-cuts-interest-rates-by-25-bps-powell-notes-trumps-victory-to-have-no-impact-on-policy-decisions/articleshow/115070690.cms" data-type="tilCustomLink" target="_blank">Read more</a> Big Tech’s winners and losers from Donald Trump’s win, according to the market After Donald Trump’s election victory, tech stocks surged, with companies like Tesla seeing significant gains. Tesla’s rise was fueled by Trump’s public support for CEO Elon Musk. Conversely, companies like Apple faced challenges due to fears over potential tariffs on China. While some, like Google, might benefit from lighter regulations, others like Meta could face political challenges. Overall, the election results reshaped market expectations for Big Tech’s future. <a href="https://www.businessinsider.in/tech/news/here-are-big-techs-winners-and-losers-from-donald-trumps-win-according-to-the-market/articleshow/115067798.cms" data-type="tilCustomLink" target="_blank">Read more</a> <h2>Top web stories</h2> <a href="https://www.businessinsider.in/entertainment/webstories/donald-trump-on-screen-a-look-at-his-iconic-cameos/slidelist/115045250.cms" data-type="tilCustomLink" target="_blank">Donald Trump on screen: A look at his iconic cameos</a> <a href="https://www.businessinsider.in/india/webstories/8-lifestyle-mistakes-contributing-to-health-problems-in-india/slidelist/115051791.cms" data-type="tilCustomLink" target="_blank">8 lifestyle mistakes contributing to health problems in India</a> <a href="https://www.businessinsider.in/travel/india/webstories/10-magical-indian-experiences-every-traveller-should-try/slidelist/115052527.cms" data-type="tilCustomLink" target="_blank">10 magical Indian experiences every traveller should try</a>

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

Ira Alok Puranik

Rupee falls 15 paise to 83.44 against US dollar in early trade

PTI

Rupee falls 1 paisa to all-time low of 84.40 against US dollar in early trade

PTI

Simply Put: Secured Loans 2.0 — why more and more Indians are turning to gold, shares and mutual funds to get loans

Ira Alok Puranik

Rupee falls 3 paise to close at all-time low of 83.66 against US dollar

PTI

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

Ira Alok Puranik

Weekend wrap: Nvidia’s AI-driven surge, Indian banks’ steady growth and more

Divyanshi Sharma

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