labels: CRISIL
Increasing loan defaults eroding bank profitability: Crisil news
09 January 2008

New Delhi: The rising default rate for housing and auto loans and credit card debt is likely to lead to erosion in the profitability of the banks in the years ahead, with housing loan defaults having grown from 1.8 per cent in 2005 to 2.2 per cent in 2007

A new report, (See: Retail assets: A case for caution, not alarm says CRISIL), by top credit rating agency CRISIL report warns of the likely growth in the rate of default of housing loans  and adds that the gross non-performing assets in home loans were expected to rise a half percentage point in 2008-09 to 2.7 per cent.

As housing loans constitute around 50 per cent of their retail loans, these defaults would pressure on the bottomlines of banks, it noted.

Similarly, defaults in loans for cars and commercial vehicles, constituting a third of bank retail loans, had risen to 4 per cent by March 2007.

The report noted that high-risk category assets amounted to about Rs400,000  and was expected to rise, with the total default also expected grow to about 10 to 13 per cent, from the 7 to 8 per cent, at present.

The report says that the increasing exposure to higher risk customers was largely through personal loans and credit card receivables, the publicity over the methods employed by recovery agents had also led to a slowdown of recovery efforts in the latter half of the calendar year.


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Increasing loan defaults eroding bank profitability: Crisil