A Study on The Grounds for Rise of NPAs in Retail Lending of Scheduled Commercial banks in India

Retail lending by banks in India gathered momentum following financial sector reforms in 1990s. During the period from 1992–93 to 2005–06, retail loans grew at an average annual growth rate of 28.4 per cent against 19.5 per cent growth of overall bank credit during this period (Hari Misra, 2009). Since 2005, over the years retail loans continue to grow even as the demand for bank credit from corporates and industry continues to remain tepid. Within retail, it is especially unsecured lending i.e., personal loans and credit cards, which are outpacing overall bank credit growth. According to Reserve Bank of India (RBI) data, personal loans increased by 16.5 per cent in June 2015 compared to an increase of 15.2 per cent in June 2014(BS Report, 2015). Growth of retail loans over the years depicts that there is a high potential for the retail loan market in India for banking sectors. The growth in credit flow to retail segment has declined overtime. This is also accompanied by fall in the growth of NPAs in the retail loans sector. From a detailed data analysis conducted for 14 years period 2001–02 to 2014–15, it has been observed that over the years the all four categories of banks have reduced consumer durable loans and rest of other personal loans, on the contrary housing finance by these category of banks have increased during the study period. The reduction in loan lending to the retail sector has greatly supported the banks in reduction its loan outstanding i.e., NPAs margins.