Banks are turning risk averse at this time of slowdown and restricting personal loan disbursement only to their own customers. The decision has been taken by the banks on the back rising delinquencies faced in the recent past.

Lenders are distressed with the rise in the number of defaults and are therefore not even considering the personal loan application of a non-customer. Earlier personal loans were a priority in the retail loan portfolio of banks as the interest rates earned in them were high.

Andhra Bank Chairman, Mr R.S. Reddy said, "As they are non-secured loans, there are higher delinquencies in the industry in general. We are giving preference to our own customers with good track record."

Even ICICI Bank that was very aggressive in extending personal loans has scaled down its business including the marketing staff involved in distributing personal loan products. "Unlike earlier, personal loans are being offered on the basis of in-house analysis of a customer's account," said a source.

In fact the bank is also using pop-up messages on its ATMs to offer personal loans for safe customers. This is all a result high default rate experienced by the bank but the extent of default was not revealed by the bank.

Industry experts say that the delinquencies for the banks lie in the range of 4% to 15%.

An HSBC official said that the unsafe credit collection environment is reason for doubts on personal loans. This has also impelled some of the foreign banks from extending personal loans.

Further the fear of future delinquencies is also affecting the personal loan customers who are not been passed the benefits of lowering interest rates in the current times. PSU bank are charging around 15% on personal loans where as some private banks and non banking finance companies (NBFCs) are charging as high as 22% interest rate on personal loans.