BANK LOANS & ETHICS.. Contd.....

ARTICLE FROM:

VIJETA KUMAR (ICICI BANK)

IBS HYD

CONTD......

In conjunction with the manufacturers, Banks and finance companies came up with various innovative products and services to lure the consumer- from 0% interest schemes, to 100% finance schemes to instantaneous loan approvals, all leading to a spurt in the Consumer Finance market in India. The key asset or loan products offered under the consumer finance umbrella is broadly classified into two categories – namely ‘Secured’ and ‘Unsecured’ products and each of these categories have individual product lines within them. The Secured Loans category includes products like Home Loans, Auto Loans, Loans against Securities, Two Wheeler finance etc. On the Unsecured side we have products like Credit Cards, Personal Loans etc. Banks like ours are offering customized financing solutions by offering schemes which have ‘step up’ and ‘step down’ repayment options (monthly installment increases or decreases each year) or repayments which are Front Ended (Higher Repayments at the beginning) or Back Ended (Higher Repayments towards the end). ICICI Bank offers many innovative programs to prospective customers. Customers applying under the Credit Card program, Membership Program, having a satisfactory repayment history on a loan with any of the specified financiers are not required to submit any proof of income: Innovations like these have really helped the consumer finance market to evolve at a fast clip and today the size of the consumer finance market is estimated at over Rs 70,000 crore, clocking an annual growth of over 30 percent.

With the growth in the consumer finance market, the role of risk management, measured in the form of containing delinquencies and losses in repayment of loans, has also increased. To measure and manage this risk requires an extremely skilled workforce and highly evolved credit delivery and monitoring processes. Banks in India have developed their own unique techniques to manage these risks and have been quite effective at that- banks use surrogates such as past repayment record of a previous loan, owning a credit card, etc to understand the financial credibility of an individual. From a macro economic perspective, factors affecting the delinquencies and losses can be immense, but are also extremely product specific. The mortgage portfolio performance will get affected by a sharp drop in real estate prices, drop in rental values for rented properties, changes in the tax laws removing exemptions for mortgage repayments. The Auto loans portfolio can get affected by the drop in re-sale values of cars, decrease in car prices, exchange rates – especially where the import components are high, taxes like sales tax, excise duty etc. Unsecured products like personal loans and credit cards can get affected by macro economic factors like employment rates, inflation, interest rates etc. All of these are in some manner or the other associated with the business cycle. Any economic downturn or slowdown can have a telling effect on the loan portfolio. Apart from these the financier also has to deal with operational risks like frauds, which get aggravated in our country due to the absence of adequate data on defaulters, sharing of this information among the banks, high levels of forgery in documents and slow and laborious law enforcement. While Banks and NBFCs are doing their bit to ensure relatively low risk credit delivery, they could certainly do with some help by way of legislation to help in cases like foreclosures etc., in case of defaults. This would help lenders to keep their balance sheets in the black and play their due role in the overall growth of the Indian economy.