With the economy under pressure, bankers are scrutinizing retail borrowers a lot more stringently these days. They’re even refusing loans to customers employed in COVID-hit sectors like aviation, hospitality, and media. These professionals are now virtually off-limits, especially for private sector players. People who can access loans get smaller amounts, and at a relatively higher rate of interest. The self-employed, too, are subjected to greater scrutiny.
Presently, only government employees can hope to get bank loans and at a much higher loan to value ratio (LTV). Lenders are willing to give them loans with each EMI equivalent to as much as 60 percent of their monthly income, as against an average of 30-40% for most borrowers.
Some banks are evaluating loan applications far more strictly and are offering a lower loan amount as a share of income for private-sector employees. The director and head of unsecured loans, Gaurav Aggarwal said that for the last three months banks have tightened their norms. They want to lend to segments which will be able to go through these shocks relatively unscathed because that will define their future ability to pay back,” Aggarwal said. He added that there have been increases in terms of the minimum income requirement. Also, interest rates in some segments have risen for the consumer.
Most lenders are asking for new income proof from existing customers because of the sharp salary cuts and shutdowns in some sectors. Borrowers who have booked under-construction properties and to whom part of the loan amount has been distributed are also being asked to produce fresh proof of income. In the event of a salary cut, their sanctioned amount could be re-evaluated.
Lenders defend these moves because even in normal circumstances, there is a list of sectors that are not considered favorable because of a variety of sector-specific issues. Mentioning an example, one banker said actors, politicians, sportspersons, and self-employed professionals in general would not get a long-tenure loan for purchasing a home or land. These categories, given their career span, would get no more than a three-five-year loan. The extraordinary situation brought upon by the pandemic has only increased the degree of caution.
Aggarwal of Paisabazaar explained that the screws began to be tightened in April and lenders will now review their policies depending on how the situation evolves. He also mentioned that September and October will be critical because that is when the moratorium ends and lenders are likely to see the first repayments data for the moratorium portfolio. Only after that will the system come back to equilibrium in terms of lending policy and pricing.