ICICI Bank to sell its small-ticket personal loans portfolio to foreign banks

ICICI Bank is selling its small-ticket personal loans (STPL) portfolio to the foreign banks. The bank is having discussions with a couple of foreign banks for this. It is has been learnt that ICICI bank as approached foreign banks such as Deutsche Bank, Standard Chartered and Barclays for selling the portfolio. The bank has decided to exit this ‘high-risk’ space a couple of months ago owing to the rising defaults in the segment.

At present, ICICI’s collection agency is looking after the portfolio until it finds a suitable buyer. According to the sources this step taken up by the bank will help in moderating the losses on the portfolio. The bank’s total STPL portfolio size is expected to be around Rs 3,000 crore, of which the bank aims to sell Rs 2,000 crore, sources added.

When the reporter of ET inquired about this from ICICI officials, they declined to comment. However, a senior official in the bank said on condition of secrecy, “The purpose of these loans was not clear and we had to deal with a high default rate. If we get suitable proposals for the portfolio, we will surely consider it.” ICICI Bank is also taking in consideration credit-scoring methods for appraising borrowers at present.

The official said bank is aiming heavily on micro financing where the loans offered are picked up for a clear developmental purpose. By get hold of the portfolio, new entrants in the retail banking space would be able to secure a foothold in the market. Sources added almost 70% customers in the portfolio will be good customers and this will enable the player to sell other products to the same customers.

ICICI Bank got into this segment a couple of years ago offering small-ticket loans of around Rs 10,000-30,000. According to sources rise in number of defaulters have forced the bank to tighten its credit filters. In actual, sources told ET that the loss rate on the STPL portfolio is around 20-25%. Several banks are getting more cautious with lending to low-income earners in urban areas. Industry sources say new entrants in this segment will be keen to pick up the portfolio to gain a foothold in the market.

Interest rates on STPL were as high as 48% which were later brought down due to RBI intervention to 18-25% last year. Banks are now aiming on medium ticket personal loan (MTPL), enhancing the ticket size from a minimum of Rs 10,000-20,000 to a maximum of Rs 5 lakh for salaried individuals. Interest rates on these loans are similar to that of credit cards at 24-30%. Industry sources said the credit worthiness of customers in the MTPL bracket would be more sound as compared to the low-income group strata which records marginal.