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Loan sanction eases ahead of festivals

With the moratorium period getting over, lenders can once again rely on credit scores to evaluate borrowers and can, therefore, relax other criteria

Expecting a surge in the demand for loans in the upcoming festive season, banks and non-banking financial companies (NBFCs) have started relaxing their lending criteria, which they had tightened during the lockdown, according to experts speaking at the Mint Money Conversation presented by Digibank by DBS that was held on 8 October.

Lenders and credit card issuers were cautious during the moratorium period as the Reserve Bank of India (RBI) had said that borrowers who took moratorium would not be classified as delinquent. This made it difficult for lenders to assess applicants as well as the impact of the covid-19 pandemic on their portfolios. Now that the moratorium has ended and borrowers have started repayment, credit bureaus are able to provide the required information. This has made it easier for banks and NBFCs to evaluate applicants.

“In the next 30-60 days, along with the fact that the festive season is around the corner, we will see a surge in demand for loans as well as lenders’ ability to underwrite and deliver them," said Anshul Swami, head, retail inclusion and rural products, RBL Bank.

According to bankers, though the spike in demand may not be the same as it was during the festive season last year, it may come close to the February level, before the pandemic broke out.

FLIGHT TO SAFETY

Lenders rely heavily on credit information bureaus to assess the creditworthiness of borrowers. But, credit bureaus were not taking into account non-payment during the moratorium period when calculating credit scores.

The extension of moratorium from three to six months added to the uncertainty. “None of us knew the impact of a black swan event like the covid-19 pandemic. When there is uncertainty, flight to safety is the typical response. With credit bureaus unable to provide the requisite data, lenders adopted a cautious approach," said Jasmeet Wadhwa, executive director and business head, consumer finance, DBS Bank India. This uncertainty is now coming to an end.

demand pick-up

Demand for loans is picking up in some segments. Recently, HDFC Ltd informed the stock exchange that loan disbursements during the September quarter were at 95% of the level in the corresponding quarter last year (read bit.ly/hdfcbiz). Demand has also picked up in the two-wheeler segment.

Credit card applications are also on the rise. “We are seeing a rise in demand for credit cards as festive season is around, and there are a lot of special offers on cards during this time," said Adhil Shetty, founder and CEO, BankBazaar.com.

The demand for personal loans may take some time to reach the pre-covid-19 levels. “We saw the personal loan growth in multiples initially. When we started our business after the lockdown, we struggled to set the first 10% business. But the next 20% and 30% after that happened within 30 days," said Adheer Dhar, head, personal loans and fintech, Clix Capital.

“My sense is that the demand should go up to about 70-75% of the pre-covid-19 levels during the festive season and then taper off. Only possibly by next March will we see a full recovery and reach the pre-covid-19 levels," he added.

According to bankers, the overall retail loan demand is about 60-70% of what they were before the pandemic hit. But the conversion rates are lower.

Bankers do expect some surge in demand over the next two months but not as strong as compared to last year. During the festival season last year, for example, RBL Bank’s card spends went up by around 28%. “While there will definitely be upward movement this time as well, given there’s always incremental demand during this period, but in absolute terms, I don’t think the growth will be that large because customers are being slightly careful and thinking through before making discretionary spends," said Swami.

new focus

During the moratorium, lenders were focusing on existing customers. They were unable to thoroughly evaluate applications of new borrowers due to lack of credit information. For existing borrowers, they could rely on their repayment track records. Banks were also able to focus on existing customers who had their savings, salary or current accounts with them could easily evaluate their cash flows.

Now the situation has changed, lenders have started looking at new customers. “Most lenders are trying to get back to normalcy and have started looking at new customers," said Dhar.

While lenders were working with limited staff on field during the lockdown, the staff situation has not improved a lot as many field executives are yet to return from their home towns and public transport is not fully functional.

However, with RBI putting regulations in place for the use of technology, onboarding new customers will not be difficult despite the lack of staff.

“Whether the customer is old or new, representatives of lenders no longer need to meet them for most of the paperwork. Technology has become a leveller. It’s the same risk analytics that would not go into evaluating old or new customers and processing their applications. Onboarding, for example, can be done using video KYC (know your customer)," said Shetty.

If you are looking for a loan, especially one like a home loan that helps you build an asset, you may not have to worry about rejection due to lender’s strict evaluation criteria anymore.

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