SBI Report Flags Soaring Unsecured Loans, Credit Concentration Risks for Indian Banks
Overview
A State Bank of India research report highlights significant risks in the banking sector, driven by a sharp rise in unsecured loans and persistent concentration of deposits and credit within India's top districts. Unsecured advances have jumped to 24.5% of total loans, signaling potential credit risk accumulation.
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SBI Report Flags Growing Risks in Indian Banking Sector
State Bank of India's research arm has issued a stark warning regarding the Indian banking system, identifying surging unsecured lending and a heavy concentration of deposits and credit in a few districts as primary concerns. The analysis, spanning two decades of sector data, points to potential systemic vulnerabilities.
Unsecured Lending Spike
Unsecured advances have ballooned from ₹2 lakh crore to ₹46.9 lakh crore, increasing their share in total bank lending to 24.5% by FY25 from 17.7% in FY05. This sharp ascent raises alarms about potential credit risk accumulation, according to the report led by chief economic advisor Soumya Kanti Ghosh.
Sectoral Shift in Lending
Since fiscal 2019, unsecured loans have consistently represented over 20% of total bank advances. Public sector banks (PSBs) are responsible for approximately half of this unsecured lending, with private sector banks also significant contributors.
Deposit and Credit Concentration
While banking deposits and advances have grown substantially, reaching ₹241.5 lakh crore and ₹191.2 lakh crore respectively by FY25, the growth remains geographically concentrated. The report reveals that deposits and credit are heavily weighted towards the southern, western, and northern regions, leaving eastern and northeastern areas lagging. The credit-deposit (CD) ratio for the sector has risen to 79% in FY25 from 69% in FY21, indicating a faster credit expansion.
Regional Disparities
Specifically, states like Odisha, Bihar, Jharkhand, and West Bengal show CD ratios below 52%. While 75 districts exceed a CD ratio of 150, 226 districts fall below 50. The top 10 districts alone account for about 43% of deposits and 49% of credit, with the top 100 districts holding 75% of deposits and 77% of credit.
PSB Market Share Recovery
The report also noted that public sector banks have arrested their market share decline since FY08, showing signs of balance sheet repair and a renewed appetite for lending, gradually reclaiming some lost ground.
