Improving credit flow to potential borrowers

In the modern-day of increasing globalization, global economic trends are also being picked up in India. While at one time, Indians were hesitant to borrow money for heads apart from the house, car or education which were comparatively long term and had tangible outcomes, modern living and rising standards of living mean that Indians are now increasingly opting for shorter-term loans like personal loans, credit card payday loans. These loans are riskier and hence, the banks need to be careful to ensure that the debtors do not fall into a debt trap.

Target Consumers for Credit Products in India

• As per a study prepared by the TransUnion CIBIL which is a Credit Information Company, it has been estimated that there are approximately 220 million consumers which fulfill both criteria i.e. age (20-69) and an income level of at least Rs. 2,50,000 per year.
• Of these 220 million people, only 1/3rd (72 million) are in the credit net which means that possess an active account with a bank or lending institution
• The remaining 150 million are not currently credit active but satisfy the age and income requirements.

How credit eligibility is determined?

• The eligibility for credit is a function of a potential borrower ability to repay the loan and the past credit history of the borrower.
• The repayment capacity of the borrower is ascertained on the basis of both the borrowers’ income and expenditure cash flows, as well as his present assets and liabilities.
• The creditworthiness of the borrower is reflected in his past track record in meeting the credit and other payment obligations such as taxes and utility bill, as well as the borrower’s risk profile.

Why this matters?

Improving ease of availing credit is an important criterion in Ease of Doing Business Index (“Ease of getting credit’). Various efforts by the government like the RuPay Kisan Credit Card (KCC), psbloansin59minutes.com, Pradhan Mantri Jan Dhan Yojana etc have contributed to the improvement of the Indian Government’s rank to 22 in 2018 from 44 in 2016.