Personal loan sanctions are getting tougher
“Based on a historical analysis of the payment hierarchy of consumers, consumers in financial distress pay mortgages first, then personal loans and cards are the last products to be prioritized over these other products in terms of payment obligations,” TU Cibil said in a report on the outlook for Indian loans.
According to the report, default rates on personal loans and credit cards will increase the most, while home loans and auto loans will change less. This will result in lenders being more selective in the latter two categories. Based on the 2008-09 crisis, the TU Cibil said that the decline in approval rates at that time was greatest for personal loans (-30%) and real estate loans (-28%).
“While we expect approval rates to decline for all major retail products as lenders are likely to tighten their credit policies and customer selection norms, given the inherent risk of products such as home loans and personal loans, we expect approval rates to decline more sharply for these products,” said TU Cibil VP Abhay Kelkar.
The inability of some consumers to pay off their debts after the moratorium period has expired is likely to have a detrimental effect on their scores and, as a result, the likelihood of default may increase. For other personal loans that are physical pickup, compliance with social distancing norms and limited field travel can hurt overall lender collection efficiency and increase roll rates, the report said.