Need urgent fund…..What is a small ticket personal loan and why is RBI concerned about it?

Many times, we face situations in life, where we are short of funds, it may be a month-end situation or an urgent need for a small amount. In those situations, we have two options, either borrow some funds from our friends or relatives, or we can choose the loan option.

What is a small ticket loan?

A small ticket loan is a type of unsecured loan, which means you don’t need any collateral for such type of loan, these are known as small tickets because you can’t borrow large funds through this option. Different types of organizations provide ranges of these loans based on their risk appetite, some organizations may offer small ticket loans up to R.s 25000, some may offer loans up to 50,000 etc, even some may offer based on the multiplication of your monthly salary like 2 or 3 times of your salary, etc. This loan is repayable in small tenures such as 6 months or 1 year etc.

Banks and NBFC are willing to offer these kinds of loans, but they are becoming more and more cautious nowadays because chances of default are very high in these types of small ticket loans, the reason being people who are borrowing through such kinds of loans have a less credit history and second banks have to incur same cost in the documentation of such loans as any other type of loan.

Many of the large banks in India are very cautious about such kinds of loans and not targeting this segment for long-term growth, though there has been an opinion that such prospective of large banks towards small ticket loans may affect the industry demand because most of the people are now using such small ticket loans for the purchase of products.

Why is the RBI concerned about small-ticket loans?

Since the banks and various other finance companies are increasing their basket of such unsecured loans, it has become a matter of concern for RBI, and RBI has warned bankers and other companies to exercise due diligence, strengthen their control mechanism, and also apply strong credit management, so that any situation of grief may not arise in future.