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State Bank of India Chair Applauds Crackdown on ‘Unhealthy’ Loans

State Bank of India Chair Applauds Crackdown on ‘Unhealthy’ Loans

The chair of India’s biggest bank said his country was right to restrict unsecured loans.

That crackdown, the State Bank of India’s Dinesh Khara told Bloomberg Tuesday (Jan. 16), helped hinder “unhealthy growth” following a surge in consumer loans he said was a “sign of heating up.”

India’s banks have been bolstered by rising demand for credit, leading banking regulators to become worried about the potential risk for the economy, the report said.

As unsecured lending began rising at almost double the rate of overall credit, and consumers began falling behind on payments, the Reserve Bank of India (RBI) asked banks in November to place restrictions on some consumer loans, according to the report.

RBI Governor Shaktikanta Das warned banks to avoid “all forms of exuberance” after instituting the measures.

“I am sure it will go a long way in terms of bringing orderliness and ensure the growth will remain healthy,” Khara said, per the Bloomberg report, adding that retail credit expansion of about 14% to 15% would represent “good growth.”

The loan restrictions have caused some FinTechs in India to struggle, including Paytm, whose shares have fallen since the rule change. Investor Berkshire Hathaway sold its 2.5% stake in the company following the new RBI restrictions.

Paytm announced in December that it would make fewer small loans — those below 50,000 rupees (about $600) — in response to the central bank’s rule changes.

Instead, Paytm said it aims to focus on higher ticket loans to consumers and merchants in the above-50,000-rupee category. The move caused brokers such as J.P. Morgan, Goldman Sachs and Citi to downgrade the company.

Paytm last month announced that it was overhauling its wealth management unit as it moved to fast-track profitability. CEO Vijay Shekhar Sharma said the company could reach that milestone before the end of 2024.

Smaller lenders had an even tougher go. Zestmoney, which also offered unsecured personal loans and was struggling even before the regulations, is closing down.

“There were a lot of players who had mushroomed trying to do lending in the Indian digital market,” Peeyush Dalmia, a senior partner at McKinsey, said in December.