It is that time of the year when you find neighbourhood markets, malls and e-commerce websites full of offers and deals across products. Even banks and financial institutions are offering easy and instant financing schemes with zero processing fees and low interest rates. Before you get swept in by the festive euphoria and end up taking credit, remember that taking too much debt through unsecured loans can create problems for you if you are unable to pay up on time.
Every asset pool will have to pass through the test of quality. Retails loans, being the fastest-growing segment, in the last five years may be no exception. As first signs of caution, a few months ago the managements of HDFC Bank, Axis Bank and Bajaj Finance indicated that they are turning watchful on the segment. Some like HDFC Bank set aside more provision towards retail loans, particularly unsecured loans in the June quarter (Q1), while ICICI Bank the pool of troublesome retail loans is on the raise at 1.9 per cent of the gross non-performing assets ratio in Q1.
The Motor Vehicles (Amendment) Act will affect your pocket in more ways than one. The stiff new penalties are already grabbing headlines. Soon, your insurance premiums could be hit too. The Insurance Regulatory and Development Authority of India (Irdai) has set up a working group to examine the possibility of linking motor insurance premiums to traffic violations.
Access to easy credit is often so tempting to young borrowers that they end up ruining their credit profiles, which significantly diminish their ability to take loans in future. Heightened competition among lenders and advancement of technology have made borrowing a breezy affair. Risk management tools have evolved with technology and now they enable lenders to do better risk assessment of the borrower before lending.
BFSI companies always seek to lend responsibly and fairly, while at the same time protecting themselves and their customers from risk. To do this, they often sift through vast amounts of data to analyze a customer’s credit history, which includes individuals and companies, before making calculative decisions about lending and the lending terms.
Banks and other lenders depend heavily on credit bureaus to judge the credit worthiness of a loan or a credit card applicant. Besides following the prudent practices of loan repayments, you also need to read and understand how your past transactions are reflected in your credit report. One key element is the ‘Accounts’ section, which lists details of all the loans and credit cards you have availed so far. There are four different status of accounts under this section; Open, Closed, Settled and Written Off.
A specific amount or a percentage of income should be earmarked for savings and investments. It is only after these amounts were set aside that spending should be considered. According to Lincoln Financial Group’s recent study – Father Knows Best, fathers show a better understanding of personal finance than the general population – including friends – whom we often turn to for such advice.
The slowdown in the economy has increased delinquencies in the auto and the commercial vehicle loans of NBFCs and banks. The drop in businesses among the micro enterprises, the small and medium scale businesses and individual businesses are leading to the distress in the segments. Rating agency Moody's had warned last week that delinquencies in both the segments could rise further.
Risk-based pricing in India is still at a nascent stage. With the strengthening of credit bureau presence, credit score-based underwriting and alternative methods of risk evaluation, we can expect risk-based pricing to pick up over time. Financial frauds are closer than you think. All the more reason why you need to be on your guard.