Banks profit margins clouded by bad loans
By Vaibhav Aggarwal
Jan 17, 2008
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New Delhi: The last quarter saw most of the banks reporting significant increase in interest margins and profit figures. However, industry analyst believe that there is more to it than what meets the eye. The splendid performance of stock market is being cited as one of the major reason for this profit making and experts fear that at the bottom line banks might face increased risks from the mounting bad loans.

The defaults in various loan segments have risen significantly and the figure is huge in case of small ticket personal loans. ICICI Bank, which has about Rs. 2500 crores outstanding in the small ticket segment, and was one of the largest provider of such loans has backed off completely and has decided not to lend small ticket personal loan to sub-prime segment any more. Other banks have decided to approach such customers more cautiously and lend only after rigorous screening procedure.

Bad loan, negatively affect the profit margins of banks and increase in such loans has more or less been a sad story for every bank. In addition to the small-ticket personal loans, another segment witnessing high default rates is the auto loan industry. The defaults in two-wheeler loans according to a report by ICRA, have touched a level of around 40%. The report stated that, issuing of such loans on the basis of temporary registrations and not properly verifying the credentials of borrowers were the main reason for the increased delinquency rates.

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