Former HDFC chairman Deepak Parekh flagged two rising concerns in India’s banking landscape — microfinance stress and the unchecked growth of unsecured lending — during a candid podcast conversation with former ICICI Bank chief Chanda Kochhar.
“Microfinance worries me,” Parekh said, pointing to alarming asset erosion ratios (AERs) and soaring non-performing assets (NPAs). “If you see—15% to 18% NPA—you don’t get a margin of that much. And the number is also staggering. What I read was about ₹60,000 crore in NPAs on a ₹3–3.5 lakh crore book.”
Parekh, who led HDFC through decades of financial evolution, said these trends are not just statistical blips but signal systemic stress. He expressed equal concern over the aggressive push by NBFCs and banks into unsecured personal lending. “There is a little issue in unsecured loans,” he warned, citing rising defaults and risky underwriting practices.
He stressed the importance of loan discipline at the retail level too. “I think only 25% of someone’s income should go toward loan repayment,” Parekh advised. “You need the balance for your family, upkeep, taxes.” The exception, he noted, is for ultra-high net worth individuals.
While he acknowledged India’s retail credit penetration remains low—consumer credit stands at 40% of GDP versus 70% in China and the U.S.—he warned that meeting future demand will be difficult unless banks can fund that growth. “Retail demand is rising, but the banks need money to do that,” Parekh said.
He also flagged low insurance penetration and weak household savings as structural headwinds. “This is a concern the RBI will have to tackle,” he said, calling for caution even as India’s financial aspirations continue to soar.
