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RAM (retail, agriculture & MSME) lending
What it is
Retail, Agriculture and MSME lending taken together - the granular end of a bank's loan book, as distinct from large corporate exposure. PSU banks have deliberately shifted mix toward RAM over the past decade
The rationale is diversification: many small exposures behave more predictably in aggregate than a concentrated corporate book, and yields are higher
Impact on industries
- Higher yields than corporate lending, where competition among banks and the bond market has compressed spreads on the best-rated borrowers
- Granularity limits single-name risk, and priority sector targets are met organically through the agriculture and MSME components rather than by buying certificates
- Operating cost is far higher per rupee lent - branches, field staff and collections - so the yield advantage is partly consumed by cost-to-income
- It is where ECL bites hardest - MSME borrowers have weaker documentation and volatile cash flows, producing higher modelled default probabilities