New Delhi: After Citigroup, HDFC Bank, another private sector banking giant has decided to adopt a cautious approach in lending small ticket loans to borrowers from the sub-prime segment. However, it has stopped short of following the ICICI Bank's line of completely denying loans to borrowers from this segment and will continue the lending process.

Banks have undergone tremendous criticism for the way they handled the loan recovery process. The excesses committed by the loan recovery agents didn't go down well with the public, the apex banking regulator - Reserve Bank of India (RBI) and the judiciary. ICICI got some serious thrashing from regulators and judiciary. The bank had to cough up a compensation of Rs. 15.5 lakhs to one of loan recovery victims and was recently fined Rs. 55 lakhs for its recovery agents' mis-adventures.

HDFC Bank country head, retail assets and credit cards, Pralay Mondal said, “HDFC Bank has always exercised caution in advancing loans and there is a need to be careful on the small-ticket-size loans, where the average size is around Rs 30,000."

HDFC Bank currently has an exposure of around Rs. 500 crore in this segment and it has the lowest non-performing assets in the retail category. Of late, banks have started to adopt strict measures for screening applicants for small ticket personal loans. These include extensive checks on background, income, expenditure and past repayment records etc. A face-to-face interaction is now more or less compulsory before any small ticket personal loan is sanctioned. The banks are also verifying the lending capabilities and are not willing to lend an amount for which the EMI exceeds 70 percent of the surplus money available with the borrower every month.