The ongoing pandemic of Coronavirus has led to increasing defaults on credit card dues and other loan payments. Banks also foresee a wave of NPAs in both consumer and industrial lending. In view of such financial adversities caused by Covid-19, a number of changes were introduced, starting with the 6-month moratorium period on all loan payments, and now, there’s a loan restructuring exercise which is beginning. With this backdrop, what is the way forward for retail lending for the rest of the year?
Nilesh Shah, MD and Group President, Kotak Mahindra Asset Management, discusses the most potent tool in the banks’ arsenal to manage credit risk in these uncertain times on LinkedIn Live, with BankBazaar CEO Adhil Shetty. You can watch the complete event here.
“My feeling is that, compared to industrial lending, retail lending is something which banks are far more comfortable with and courtesy credit scores like CIBIL, it’s possible to strengthen your credit culture following just one metric”, says Shah. He believes that retail lending will be encouraged by bankers, and for those holding a good credit track record, raising money will be relatively easy.
While the real estate developer borrows in the market at 24% and 30%, a retail housing loan borrower borrows at 7% and 8%. “That’s the kind of credibility which retail borrowers have built with the banking system, and most banks will focus on lending on the retail side despite recent challenges”, Shah continues.
The threat of payment defaults by borrowers continues to be one of the biggest challenges for banks. However, on the other side, the demand for retail loans including personal loans and credit cards continues to rise, and digital technologies such as Video KYC make digital lending easier than ever. Keeping this in mind, several lenders are taking a more conservative approach to lending by increasing their credit risk premiums. So, while retail lending is likely to get a boost through digitization by way of contactless methods, courtesy government interventions and innovations in the Banking and Fintech space, we are already seeing tighter credit policies that set the bar high for approval of retail loans.
#ExpertSpeak LinkedIn Live events occur every Thursday, where BankBazaar CEO Adhil Shetty invites industry experts in the finance space to talk about money management, investment, and more, especially in the backdrop of Covid-19.