The Hindu Business Line : Banks fixing stringent norms for personal loans

Coimbatore, March 11 Ask banks point blank about whether they are going slow on personal loans and the answer is No. But anecdotal evidence points to it. At the least they seem to have consciously stopped promoting it as a product, while continuing with the home loan and educational loan melas.

Has it become an unpopular product? May be. There are a number of reasons for not being too aggressive about this product now. Bankers, unwilling to be named said, “The default rates are on the rise; we have to make higher provisioning to cover the risk weights; and this is making the product more costly leading to higher default. The monitoring mechanism is not easy. Borrowers prefer to default on personal loans since there is no collateral that can be seized. It is a vicious cycle.”

NEW NORMS

While banks don’t turn away the loan applicants, they have indirectly started fixing more stringent norms to keep such borrowers at bay. Select private banks in the South, when contacted, said they had revised the parameters to make it a ‘well-structured’ product. One such new norm - not to lend loans to people who have held a job for less than 3 years.

That straightaway rules out rolling stones who hop jobs every year. Earlier banks gave personal loans if you had been employed in a place for at least one year.

“We found every 10th such account giving us problems. This clause disqualifies those that hop jobs more frequently,” an official reasoned.

Banks have started refusing personal loans for investing in stock market, for purchase of unapproved site and to those that do not have a monthly salary.

Loan amount down

And the loan amount approved has also come down. The approval does not exceed five times the gross annual income as compared to seven times the gross income sanctioned earlier.

Some banks advance loan for conducting a daughter’s marriage or some other personal function at home.

“Personal loan is relationship banking. And such advances have not gone bad,” the official said referring to the marriage advance. It looks as though you have to play the sentiment card to get a personal loan now!

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