You no longer need to wait endlessly for loan approvals anymore. In the new-age digitised marketplace, lenders have reduced the turnaround time drastically to offer instant loans. Recently, ICICI Bank Ltd launched two instant paperless home loan products—a regular home loan and a top-up home loan. The instantaneous home loan facility enables existing customers to get the final sanction letter for new home loans as well as for a top-up on an existing home loan, all through the digital channel.
“Instant home loan enables pre-approved salaried customers of the bank to avail loans up to ₹1 crore for a tenure of up to 30 years (based on the age of the customer) using internet banking facility. Insta top up loan helps existing home loan customers of the bank to avail the facility of topping up the loan instantaneously up to ₹20 lakh for a tenure of up to 10 years in a paperless manner," said the bank’s media statement.
While getting a loan approved has become remarkably easy, does it really benefit borrowers?
So what has changed for lenders to be able to approve loans more quickly than before? This has become possible because banks no longer rely on manual verification of details provided by potential borrowers and instead use digital solutions to gauge their creditworthiness. “What started as the digitization journey about 10 years back has morphed into truly digital lending processes over the past three-four years. Aadhaar-based eKYC authentications for loans less than ₹60,000 which was in existence till the Supreme Court judgment was one of the core levers in smoothening of the digital journey for consumers," said Ashish Singhal, managing director, Experian Credit Information Co. India, a credit bureau.
Digital lending platforms are also starting to use non-credit information to gauge creditworthiness. “They evaluate customers’ shopping amount and pattern. Non-banking finance companies (NBFCs) that have partnered with wallet companies evaluate wallet load and spend transactions for lending," Singhal added.
Also, increasing non-performing assets in corporate and MSME loan segments over the past few years have pushed banks to seek credit growth in the retail loan segment.
How it works
Although these loans are advertised as “instant and paperless", the whole loan approval process may not be online, and you would still have to visit a bank branch. “Customers should look at instant loan sanctions as soft approvals. Home loans need detailed due diligence of the property being purchased, supported by the title deed, usage documents, etc.," said Raj Khosla, founder and managing director of MyMoneyMantra, a financial services firm.
As far as ICICI’s instant home loan is concerned, to avail of it, you need to choose a property that is pre-approved by the bank. To apply for the loan, you need to log in to internet banking , go to the “My Accounts" page, click on the “Loans" tab and choose “instant sanction - home loan". Once you have selected the amount and tenure and paid the processing fee, the sanction letter will be sent to your registered e-mail ID. But the rest of the process would have to be carried out in person.
“The approval for an instant home loan is an in-principle sanction. The customer might still need to submit the documents of the property for due diligence. Documents supporting the income claimed by the customer could also need to be submitted to the bank. It’s very similar to what banks are already doing for unsecured loans, it is just being extended to the home loan product by ICICI Bank," said Gaurav Gupta, chief executive officer, Myloancare, an online lending platform.
For the insta top up loan, the whole process can be carried out digitally. All you need to do is log on to internet banking, apply for the top-up by choosing the amount and tenure, and complete the process by entering the OTP sent to the registered mobile number.
Tread with caution
Just because a loan is easily available does not mean you should opt for it. In fact, taking a loan without carefully considering the pros and cons can do more harm than good. “Easy access to credit may lead to over-leverage and hence it is important for consumers to be cautious and borrow within their means," said Singhal.
Also, there are restrictions on who can avail of an instant loan. Like ICICI’s instant home loans, all such loans are only for those who have an existing relationship with a bank either as a savings account holder or a borrower. According to Khosla, this helps the bank ensure that the customer won’t default on the loan. “The product is for existing customers, especially those who have salary accounts with the same bank. So the history of salary credits and any EMIs (equated monthly instalments) is available with the bank, which helps them assess the customer’s loan eligibility," he said.
While taking a loan you don’t need may be disruptive for your finances, Singhal doesn’t believe that the rise of instant lending can result in increased delinquencies, at the industry level. This is primarily because the ticket size of such loans is still fairly low.
Instant loans are a way for banks to not only offer convenience to borrowers but also expand their lending pool.