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    Personal loan sanctions to get tougher

    Synopsis

    According to a report by TU Cibil, default rates will move up most in personal loans and credit cards, while home loans and auto loans will see less of a shift. This will result in lenders being more selective in the latter two categories.

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    (This story originally appeared in on Jun 12, 2020)
    MUMBAI: Obtaining personal loans is set to get tougher in the post-Covid-19 era as banks tighten credit policy and customer-selection norms. According to credit information company TransUnion Cibil, approval rates are likely to decline for all key retail lending product categories. TU Cibil has used the 2008-09 financial crisis as a benchmark, to predict a fall in the approval rates for all retail lending product categories.

    “Based on an historical analysis of consumer payment hierarchy, when facing financial distress, consumers pay mortgages first, then personal loans and cards are the last product to be prioritised in terms of payment obligations relative to those other products,” TU Cibil said in a report on outlook for Indian credit.

    According to the report, default rates will move up most in personal loans and credit cards, while home loans and auto loans will see less of a shift. This will result in lenders being more selective in the latter two categories. Extrapolating from the 2008-09 crisis, TU Cibil said the drop in approval rates then was most acute for personal loans (-30%) and loans against property (-28%).

    “While we expect a drop in approval rates for all major retail products due to lenders likely tightening their credit policy and customer selection norms, given the inherent risk of products like loans against property and personal loans, we anticipate a greater decline in approval rates for these products,” said TU Cibil VP Abhay Kelkar.

    The inability of some consumers to pay their debts after the moratorium period ends is likely to adversely impact their scores, and consequently the default probability may see a rise. For other personal loans where there is physical collection involved, adherence to social distancing norms and limited field travel may impact overall lender collection efficiency, increasing roll rates, the report observed.

    Click here to download ET Online’s guide to everything personal finance in the times of Covid-19

    2 Comments on this Story

    dhruve140661 days ago
    This had to happen ! The big liquidity infusion announced by the FM Iis nothing but a drama . People who are rich and don’t need the money are being pestered to take some loan or increased limits and ppl who really need the money now are being refused ... but not the banks fault I guess as they want to secure their own money too as they are responsible to the depositors ! It is actually quite Hilarious ! I have deposits with the bank and the banks are constantly calling me up to take a loan ! How to explain ... if I wanted a loan I would have first used my deposits ! Some rule needs to be made to see how many ppl got loans who didn’t have deposits ! I think the answer will be zero . I barely use my credit card and whatever I use I pay in full ... meaning I don’t really need the money yet my credit card company has increased my limit !
    Jay Kumar61 days ago
    Banks are doing opposite. Personal Loans/Credit cards are relatively easier to get compared to Housing loans. Banks want you to pay double interest.
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