Slippages from smaller personal credit a risk for secured loans

The Reserve Bank of India (RBI) cautioned in its biannual Financial Stability Report (FSR) that borrowers with unsecured loans, such as credit cards and personal loans, who also have larger secured loans, risk triggering delinquencies in the secured loans if they default on the smaller ones.

- Subrata Panda

Default in any loan category results in other loans of the same borrower being treated as non-performing by the lending financial institution.

In addition, the RBI highlighted that the first default is mostly observed in unsecured advances. Among borrowers at risk of default, the risk of delinquency is trending high among those who, in addition to a personal loan or credit card outstanding, have availed of other retail loans.

"Nearly half of the borrowers availing credit card and personal loans have another live retail loan outstanding, which are often high-ticket loans (i.e., housing and/or vehicle loans)," the RBI said in the report.