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April 24, 2024

SBI Chairman Warns: Poor Risk Assessment Fuels Asset Quality Concerns in Unsecured Lending

SBI Chairman Dinesh Kumar Khara has pinpointed poor risk assessment as the underlying cause of asset quality concerns in unsecured lending, echoing the regulatory discomfort over increased exposure to risky products such as credit cards and personal loans. Speaking at an event where SBI Cards launched a travel-focused credit card, Khara emphasized that effective risk management is key to mitigating such concerns.

Late last year, the RBI heightened risk weights on unsecured lending to discourage banks from extending more credit to these riskier segments devoid of collateral. Khara highlighted that the 25-year-old SBI Cards, with its focus on robust risk assessment, has successfully navigated asset quality challenges. He noted that the company’s extensive user database and behavioral patterns have contributed significantly to this.

SBI Cards’ latest offering, SBI Card Miles, is tailored for travel enthusiasts. Abhijit Chakravorty, the company’s Managing Director and Chief Executive, revealed that nearly a quarter of spending in the fiscal year 2023-24 was on travel, hospitality, and entertainment. The card boasts various features aimed at travelers, with the entry-level variant priced at a joining and annual fee of Rs 1,499, excluding taxes.

Khara’s remarks underscore the importance of thorough risk assessment in maintaining the health of unsecured lending portfolios. He emphasized that while unsecured lending presents opportunities, it also poses significant risks if not managed properly. SBI’s approach, as demonstrated by SBI Cards, highlights the efficacy of leveraging data and analytics to assess and mitigate risk effectively.

The launch of SBI Card Miles reflects SBI Cards’ strategic focus on catering to specific customer segments while maintaining asset quality. By offering tailored solutions like travel-focused credit cards, the company aims to tap into niche markets while ensuring prudent risk management practices.

Khara’s comments serve as a reminder to the banking industry of the imperative to prioritize risk assessment and management in unsecured lending. As regulatory scrutiny intensifies, banks must adopt robust risk assessment frameworks to safeguard against asset quality deterioration and uphold financial stability.

In conclusion, Khara’s emphasis on the importance of risk assessment sheds light on the critical role it plays in addressing asset quality concerns in unsecured lending. SBI’s proactive approach, exemplified by SBI Cards’ success, underscores the significance of leveraging data-driven insights to mitigate risks effectively in today’s dynamic financial landscape.

Jhumpa Lahiri

Jhumpa Lahiri

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