Earlier this month, Mint reported that banks did not expect retail loans to pick up immediately, as consumer demand could take some time to recover from the covid-19 impact (bit.ly/2A430XT). Supply side issues such as real estate projects being stalled meant that new buyers would not enter the market immediately. But contrary to this, lenders such as HDFC Bank and the State Bank of India have reported an uptick in demand for retail loans. But this doesn't mean that banks will be as quick to lend.
“It’s no surprise that there has been an increase in the demand for retail loans, especially personal loans and credit cards, given the financial climate right now. At the same time, banks have a lot of liquidity, because RBI has facilitated it and is pushing banks to lend," said Raj Khosla, founder and CEO, MyMoneyMantra, a financial services firm.
But increase in demand does not mean increase in supply in this case.
“Given the uncertainty surrounding the income and financial stability of a large portion of the borrower base, banking intermediaries predict that loan disbursals won’t be as easy as they were before. In their own interest, banks can only lend based on the data available. Currently, there is a moratorium in place, so a lot of the data is not easily available to banks. They might not be able to gauge the existing loans or EMI outgo of an applicant from their bank statement if they have opted for the moratorium," said Khosla.
According to Naveen Kukreja, CEO and Co-founder, Paisabazaar.com, this is likely to last at least for the next few months.
"Banks and NBFCs are likely to be very conservative while approving new loans. The repayment behaviour of existing borrowers once the moratorium period ends would also play a role in determining the level of cautiousness from lenders," he said.
Risk-aversion among banks means lending norms will be tightened, and the parameters used to evaluate a loan application will become stricter. Banks usually take into account the stability of the sector and company the applicant works in.
Given the circumstances, those employed in industries that have been hit especially hard by the pandemic might be at a disadvantage. Other factors such as age, income, other loans being serviced and credit score are also evaluated. Higher credit score is always an advantage, and the guideline for what credit score qualifies you for a loan might also be tightened.
Those with higher income and no existing loans are likely to get preference, as the loss of employment or income is unlikely to hit them as hard or disrupt their ability to repay the loan.
"Some banks have already increased their spread or credit risk premium on fresh loans to price in the higher credit risk. Going forward, other banks can also be expected to follow the same while reviewing their lending rates. Lenders are also likely to be extremely cautious in lending to those working in sectors, severely affected by the current economic downturn, like travel, hospitality and entertainment, fearing fresh NPAs from them. Lenders may also try to reduce their credit risk while approving fresh loans by reducing the loan to value ratio or monthly income to EMI ratios or may even demand more collateral for the loans," said Kukreja.
Khosla agrees. “Banks have to be cautious about those who are ‘new to bank’ or NTB, which makes up the bulk of the fresh demand. So there is hardly any disbursal going on to this section right now. But if a custom has an existing relationship with the bank, the lender might be more confident about disbursing a new loan to them," he said.
While there is definitely interest in borrowing, given the cash crunch the covid-19 crisis has landed many in, new borrowers might find it difficult to get a loan issued as banks are likely to be cautious about lending at this time.
Click here to read the Mint ePaper Livemint.com is now on Telegram. Join Livemint channel in your Telegram and stay updated
