New Delhi: Personal loans ranging from Rs. 10,000 to 50,000 will soon be available at reduced interest rates. ICICI Bank, a trendsetter private sector bank has already taken steps to offer such small ticket personal loans at interest rates comparable to regular personal loans.

Such small ticket personal loans were earlier available at very high interest rates in the vicinity of 35 percent. After the reduction these loans may be offered at interest rates ranging from 18 to 25 percent. Another private sector major, HDFC Bank is also planning to slash its interest rates on such loans in November. HDFC Bank is going to introduce Medium Ticket Personal Loan (MTPL) instead of its Small Ticket Personal Loan (STPL), which it will gradually phase out. The lowest amount lent under this scheme will be of Rs. 20,000 up to a maximum of Rs. 5 lakhs for eligible applicants. Since these loans will now be offered as regular personal loans, the interest will be cut from 37% to about 18-22% (reducing) and 12% flat (per annum).

V Vaidyanathan, Executive director of ICICI Bank, said: “The rates for small-ticket personal loans have been aligned with regular personal loans. We believe that lower interest rates will lead to lower defaults on the back of better underwriting. This is a dramatic reduction in interest rates, but it will mean that the small loan borrower can access loans at much lower rates than before.”

The lowest amount of personal loan available till now was Rs. 10,000 and the small personal loan segment had a high default rate of 10 percent as compared to 3 percent of the regular personal loans. The recent hike in defaults and unruly behavior of the recovery agents have put many banks on the backfoot. As an effort to counter this menace the banks are now willing to lend at reduced interest rates so that there are fewer defaults. Banks have also decided to check in the credit score of an individual before lending. The increase in lower limit of personal loans will make things difficult for the lower income groups like rickshaw pullers, hawkers, drivers etc. who generally seek a loan below Rs. 20,000.