Personal loans would be the target for public sector banks to shoot up margins
By Vaibhav Aggarwal
May 10, 2010
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The economy is on the track of recovery. In this scenario the public sector banks are in plan to offer personal loans on a bigger scale to customers so as to improve their margins as well as profitability. The reason behind this plan is that the personal loans yield higher returns than any other loan product.

Banks like Allahabad Bank, Uco Bank, Union Bank of India and United Bank of India have chalked out plans on how to sell their high yielding personal loan products to the retail customer.

The retail loan share of these banks is lower than the industry average and thus they need to scale up. These banks have a retail loan share of 12-14% as compared to the industry average of 20-22%. These banks and many others had stopped their personal loan segment fearing chances of default after the economic slowdown.

"Personal loan gives a better spread as well as it helps in building relationship," Allahabad Bank chairman and managing director JP Dua said. The current retail loan share of the bank stands at 13.92% which it aims to improve to 22% in the upcoming three years.

Banking major, State Bank of India has its share at around 21%.

According to United Bank of India chief Bhaskar Sen, the home and car loan share would shoot up owing to the increasing purchasing power of the middle class customer.

"The housing segment will continue to give banks businesses many more years. In the car loan segment, demand is seen especially in the small car category," Mr Sen said.

Uco Bank chairman and managing director SK Goel said: "We have identified 200 branches across the country to push retail loan products as our share of retail loan business is comparatively low."

"A higher share of retail loan is important for credit diversification. It's a stable business and it improves relationship with customers," Bank of Baroda executive director RK Bakshi said.


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