Banks are reappraising sanctioned loans, vetting the financial condition of borrowers
The lockdown has caused a depletion in the disposable income and people’s repayment capacity
Lenders are hitting the brakes on disbursing sanctioned home loans, unwilling to take risks. Home loans make up over 50% of the retail loan sector. As per industry watchers, a number of banks and NBFCs have been reappraising sanctioned loans, carefully vetting the borrower’s financial condition since the lockdown began in March.
Jorty M. Chacko, executive director, IDBI Bank said the bank was evaluating home loan disbursements to understand the repayment capacity of borrowers. “The risks associated with retail lending have undergone considerable shift owing to covid-19 and we have tightened the norms to take care of such risks. All home loan cases logged in prior to covid-19, but not sanctioned, are re-logged in as per the new norms. We have restricted lending to some segments."
The pandemic-led lockdown has hit salaries and self-employment incomes in equal measure, with a large section seeing a depletion in disposable income and repayment capacity. Data released by the Centre for Monitoring of Indian Economy (CMIE) showed India’s unemployment rate had climbed to 27.1% in the week ended 3 May and about 121.5 million Indians were out of jobs in April.
According to a Mumbai-based public sector banker, amid the coronavirus crisis, review of documents was more prevalent for loans that had in-principle sanctions through digital channels. These loans, the banker said, are getting a stricter relook before being disbursed. “The point here is that if your take-home salary has been slashed, then our assessment of your home loan limit will also change. It will be difficult for the customer to repay large loans and we want to avoid getting into another bad debt trap."
Reserve Bank of India (RBI) data showed that between 27 March and 24 April home loan growth shrunk by 0.6%. Notably, the segment has been traditionally favoured by lenders because of the collateralised nature of the borrowing.
According to Jaxay Shah, chairman of realty sector lobby Credai, banks are asking for fresh documentation post-lockdown and have put on hold almost all home loans that they were processing, which in turn has impacted home sales. “Banks are rechecking papers and asking people to bring in their payslips again."
Considering that a majority of State Bank of India (SBI)’s borrowers are government employees, job losses are not a concern, said a senior SBI official, adding that many borrowers were asking the bank not to disburse their sanctioned home loans because work had stopped in under construction projects that they had booked properties in.
“Borrowers have asked not to disburse the loans because they are not seeing progress in construction activity owing to the lockdown," he added.