When Vivid Jain, 36, working as a senior executive with a multinational company in Gurgaon, applied for a home loan about two months back, he was in for a rude shock. In spite of having an annual pay package of Rs 20 lakh, banks were not willing to entertain his loan application. Reason? His credit worthiness was low, though he had never applied for a home loan earlier.
Jain was told that he had been delaying in paying his credit card bills. Besides, a couple of times, he had issued cheques which bounced. It came as a surprise to Jain that his financial records and spending behaviour were being closely watched!
Jain is not alone.
Credit rating agencies and banks are monitoring the financial habits and repayment patterns of consumers and rating them on a continuous basis, before approving a home or personal loan. So, while overall non-performing assets (NPAs) — loans that do not yield returns — have risen to over 5% of total advances in the retail loan segment, home and personal loans are less of concerns for lenders.
With banks beginning to share information about customers’s financial history and a ready access to credit scores, default rate in the home loan segment has come down – from 1.06% by the end of 2010 to 0.57% currently, according to CIBIL said.
Instead, the growth in home loan disbursals grew 18% in 2015-16 so far compared to 2014-15.
“An individual’s CIBIL report other than her income is one of the most important tools used by a lender to evaluate application for any loan or credit card,” said Harshala Chandorkar, chief operating officer, CIBIL.
Credit information companies such as Credit Information Bureau of India Ltd (CIBIL), Experian Credit Information Company of India, High Mark Credit Information Services and Equifax Credit Information Services among others,give a numeric summary of your credit history, ranging from 300 to 900 points. The closer your score is to 900, the higher are your chances of getting your loan application approved. Consumers with a score of over 700 to 750 are generally considered “good” borrowers.
Besides, typically, banks are willing to give you loans where a maximum 50% of the monthly salary goes as EMI, irrespective of the income bracket.
“We are constantly assessing our existing customers and rating them to analyse if they qualify to get loans… So the process is done in advance and when you need personal loans it would get a sanction on an immediate basis,” said Rajiv Anand, group executive and head, retail banking, Axis Bank.
According to Experian Credit Information Company of India Pvt Ltd, 40-45% of the applying population at most banks today are “new to credit segment” — people who have not taken loans in the past. The score card for this segment is different, comprising 6 grades starting from one. Lower the grade, higher the risk.
With the Pay Commission recommending a 23.5% hike in wages of central government employees, home loan demand is expected to grow even more in the next financial year.