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.