With the economy under duress, bankers are are scrutinising retail borrowers a lot more stringently these days. They’re even refusing loans to customers employed in Covid-hit sectors like aviation, hospitality and media. These professionals are now virtually off limits especially for private sector players.
Those that are able to access loans get smaller amounts and at a relatively higher rate of interest. The self-employed, too, are subjected to greater scrutiny.
For now at least, only government employees can hope to get bank loans and at a much higher loan to value ratio (LTV). Lenders are willing to give them loans with each EMI equivalent to as much as 60% of their monthly income, as against an average of 30-40% for most borrowers.
An executive with a large private bank said it was checking applications to see if the person is currently employed or not. “For certain specific industry segments like retail, hospitality and aviation, we’ve put in some internal guidelines,” the executive said. One mid-sized private lender has sent out a clear list of proscribed sectors to its call centres. Journalists, teachers and professionals from the aviation and hospitality sectors have been identified as clear no-go areas by this bank.
Not all lenders, however, are shutting out risky borrowers altogether.
Some are evaluating loan applications far more stringently and are offering a lower loan amount as a share of income for private-sector employees. Gaurav Aggarwal, director and head of unsecured loans, Paisabazaar.com, said that over the last three months banks have tightened their norms. “They want to lend to segments which will be able to go through these shocks relatively unscathed because that will define their future ability to pay back,” Aggarwal said. He added that there have been increases in terms of the minimum income requirement. Also, interest rates in some segments have risen for the consumer.
Most lenders are asking for fresh income proof from existing customers because the sharp salary cuts and furloughs in some sectors. Borrowers who have booked under-construction properties and to whom part of the loan amount has been disbursed are also being asked to produce fresh proof of income. In the event of a salary cut, their sanctioned amount could be re-evaluated.
Lenders defend these moves on the grounds that even in normal circumstances, there is a list of sectors which are not considered favourable because of a variety of sector-specific issues. Citing an example, one banker said actors, politicians, sportspersons and self-employed professionals in general would not get a long-tenure loan for purchasing a home or land. These categories, given their career span, would get no more than a three-five-year loan.
The extraordinary situation brought upon by the pandemic has only heightened the degree of caution. Ashish Singhal, managing director, Experian Credit Information Company India, said banks have tightened their policies as they want to rein in credit losses. “Given the existing portfolio due to this black swan event will lead to higher delinquencies within the short to medium term, they have to provide for that and hence, it is already a hit on the P&L,” he added.
Aggarwal of Paisabazaar explained the screws began to be tightened in April and lenders will now review their policies depending on how the situation evolves. “September and October will be critical because that is when the moratorium ends and lenders are likely to see the first repayments data for the moratorium portfolio. Only after that will the system come back to equilibrium in terms of lending policy and pricing,” Aggarwal said.