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Banks Tighten Personal Loan Disbursal Criteria

Banks Tighten Personal Loan Disbursal Criteria

Instant Loan Upto 30 Lacs | Quick Approval | Contactless Loan Processing
03 Sept 2020
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The pandemic has affected economies across the world. Some have witnessed a severe impact while others have managed to partially mitigate the negative effects of the pandemic. With infections rising at a steady pace, India has been hit hard. The Indian GDP has contracted by 23.9% in the first quarter of the current financial year. The deteriorating financial condition has had an effect on the livelihoods of many people. People have been forced to prioritise essential expenses and as per reports, it will lead to a rise in loan defaults.

Impact

An increase in the probability of loan defaults has made lenders wary of sanctioning new loans. As per past data, the worst affected category is likely to be the personal loans segment. It has been observed that the approval rate of new loans witnesses a steep decline during global crises. As per an analysis of historical data on consumer behaviour, people prioritize mortgage payments over personal loan instalments. Since the personal loan category will be more affected, lenders will be more selective in personal loan disbursal. Credit information company TransUnion Cibil extrapolated the data from the financial crisis of 2008 and found that the personal loans had witnessed the steepest decline in approval ratings.

Rationale

The Reserve Bank of India has announced a variety of measures to help borrowers tide over the crisis. The biggest relief provided by the central bank to the borrowers is the six-month moratorium on repayment of all term loans. The six-month window expired at the end of August. The RBI had mandated that the credit profile of a borrower will not be affected even if he/she avails the moratorium. Even though opting for a moratorium did not affect the credit score of the borrower, banks are refusing to sanction personal loans of such borrowers. Banks take various factors into account to determine personal loan eligibility such as credit score, source of income, continuity of job and average bank balance. Besides these factors, banks have also become selective while loan disbursal to people in sectors like hospitality. Once a borrower opts for a moratorium, the bank gets to know that he/she is facing a cash crunch. With the economy likely to deteriorate further, banks are likely to deny fresh personal loans to borrowers.

Other Factors

The details of the applicant are important for loan disbursal. Lenders generally send a bank official to conduct physical verification. With the lockdown affecting the movement of people, conducting physical verification became difficult. The easing of the restrictions has had a limited impact leaving various issues unresolved. Banks are likely to tighten lending to tide over the disruption. A combination of factors such as the outbreak of the pandemic, the resultant lockdown, rising infection and the moratorium on loan repayment has forced banks to tighten criteria for personal loans. Moreover, the moratorium granted by the RBI just got over. During the moratorium period, banks had limited information on the financial health of the borrower. Some borrowers might be facing a temporary liquidity issue but a number of people may have structural problems. With the duration of moratorium getting over, the number of delinquencies is likely to rise. With an increase in loan defaults, banks have a few options left. Naturally, many banks are planning to tighten personal loan eligibility criteria. To mitigate the impact of stricter disbursal criteria on the loan book, many banks may only target high-income individuals. It will make it difficult for middle-class borrowers to access capital.

You can read more about Tips to Improve Personal Loan Eligibility.

Conclusion

While banks may be tightening the loan disbursal criteria, not all doors have closed for borrowers. New-age non-banking financial companies backed by digital infrastructure will be providing personal loans without any hassles. NBFCs may also tighten lending criteria but the usage of digital tools has made it easier for them to ascertain the paying ability of borrowers. Even with tightened rules, you can avail personal loans from Finserv MARKETS without any hiccups. One can get a personal loan at attractive interest rates through Finserv MARKETS from the comfort of his/her home. Personal loans, available on Finserv MARKETS, come with flexible payment tenure and do not require any collateral or security.

 

Finserv MARKETS, a subsidiary of Bajaj Finserv, is a one-stop digital marketplace that has been created for consumers on the go. It offers 500+ financial and lifestyle products, all at one place. At Finserv MARKETS, we understand that every individual is different. And that’s why we have invested in creating a proposition – Offers You Value. A value proposition that ensures you get offers which are tailor made for you. We also offer an amazing product range and unique set of online offers across Loans, Insurance, Investment, Payments and an exclusive EMI store. Be it in helping you achieve your financial life goals or offering you the latest gadgets, we strive to offer what you are looking for. From simple and fast loan application processes to seamless and hassle-free claim-settlements, from no cost EMIs to 4 hours product delivery, we work towards fulfilling all your personal and financial needs. What’s more! Now enjoy the same benefits in just one click with our Finserv MARKETS App