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Pack the bags, banks will fund your holiday

Poornima Mohandas

Mumbai , March 24

WITH banks eager to sell personal loans for any purpose, customers too are fast evolving. `Holiday finance' is emerging as a new growing area of business for banks.

To tap this opportunity, banks such as HDFC Bank - which has an arrangement with SITA - are looking for more such relationships ahead of school vacations, the time when families typically tend to travel overseas.

HSBC is also gung-ho about funding such leisure trips.

"The key usage patterns of personal loan borrowers today are for holidays, purchase of consumer goods, education and home renovation. In a smaller way, people also borrow for wedding ceremonies,'' said Mr Shyam Srinivasan, General Manager (Credit Cards and Personal Loans), Standard Chartered Bank.

Youngsters are not averse to taking loans for leisure activities such as overseas holidays and honeymoons, an idea the previous generation would have detested.

The Indian borrower is becoming less averse to borrowing, what with lowering of interest rates and greater availability of loans from various banks.

Despite the competition in the market, lending rates on this front are likely to go down further from current levels of 14-18 per cent, according to bankers.

This rate will come to 10-12 per cent only when a credit bureau for retail customers is in place, said Mr Srinivasan.

India's first credit bureau, CIBIL - through which commercial banks will share credit history of customers - is expected to take off in the coming fiscal.

Bankers said that today's rates are justified since these are high-risk, unsecured loans that are given based on an individual's monthly income, educational background, other obligations in terms of loans repayments and work experience, among other parameters.

The rates have fallen from 21 per cent levels seen two years back. Typically, these loans are of Rs 1-4 lakh and are to be repaid in 2-4 years.

Any salaried individual with a monthly income of Rs 6,000 is eligible for a personal loan. For self-employed persons, a declared income of Rs 1 lakh in a year would fetch a personal loan.

The market is heating up with players such as HDFC Bank and Citibank aggressively marketing personal loans to the youth with free gifts thrown in. Others like IDBI Bank and Centurion Bank are to increase their thrust soon.

Although hard to assess, the size of the current market, which consists of players holding small portfolios, is put at Rs 6,000-7,000 crore.

The major growth phase in personal loans is expected to kick in as the numerous home loan borrowers in the country take loans to furnish their new homes.

This, however, may come with a lag effect, as the home loan by itself might be too burdensome for the borrower to think of another loan.

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