Credit card holders face credit score challenge
An ASSOCHAM analysis noted with concern arising out of Covid-19 crisis that witnessing a robust year-on-year credit growth of 17% at the end of February, 2020, personal loans have an outstanding amount of `25.32 lakh crore, posing a grave challenge for borrowers to pay their EMIs on time without default and retain their credit scores.
The ‘personal loans’ segment, as defined by the Reserve Bank of India, includes consumer durables, housing, advances against fixed deposits, credit card outstanding, education and vehicles loans. As per the latest RBI data, analysed by ASSOCHAM, the major components in the ‘personal loans’ (PLs) were housing, vehicle loans and credit card outstanding, among others. Though components like consumer durables, had shown a big y-on-y growth of 43%, the base was small with outstanding of `6495 crore.
Deepak Sood, Secretary General, ASSOCHAM said, “As we deep-dived into the data, the areas of concern appear to be housing, credit cards, vehicle loans and education loans. Though the RBI has granted a three-month moratorium on EMIs, deferment comes at the cost of compounding of interest as the tenure gets prolonged.”
The credit card spenders were, in a way, leading the demand push and were sitting on an outstanding of `1.11 lakh crore as at the end of February, 2020 logging a significant annualised growth of 33%. Likewise, the housing sub-segment witnessed an annual expansion of 17.1% with outstanding of `13.30 lakh crore. Even before the Coronavirus outbreak, vehicle loans were acting as driver for somehow reviving the automobile demand with outstanding loans of `2.21 lakh crore with growth of 10.3%.
Though education loans had shown a negative growth of 3.4%, the aggregate outstanding were large enough at `66,563 crore to pose debt - servicing risks, which would only scale up in the wake of employment situation deteriorating because of lockdown and the subsequent costs to the economy. Sood said, “The outstanding loans to be serviced in different tenures carry different rates of interest and penalty clauses. For instance, the credit card default attracts huge compounding costs. Moreover, there is not much clarity with regard to credit card outstanding’s in reference to RBI moratorium.” The PL borrowers always remain concerned about maintaining their CIBIL ‘credit scores’. “Most of the personal borrowers are young professionals who have long working career as also personal ambitions ahead of them. We must ensure that their concerns are addressed and their credit scores are not compromised”, he added.
Insolvency Professionals should use technology and keep working for revival of companies under IBC
In an ASSOCHAM webinar on ‘Covid19 relief-Insolvency and Bankruptcy Code,’ Dr. Mukulita Vijayawargiya, WTM (Research and Regulation Wing), IBBI said that the insolvency professionals should engage greater use of technology and keep working for revival of companies under the Insolvency and Bankruptcy Code (IBC).
She also suggested that process of mediation can be adopted for settling the claims, instead of filing applications before the NCLT and waiting for the orders thereby resulting into delaying the process. She said, “All professionals have to learn the process and technique of mediation and be mediators so that the insolvency process can be completed in 100 days as against 180 days. If we adopt pre-pack, it can be completed in 80 days also.”
She stated that the lockdown period is a good time for insolvency professionals to complete the tasks which can be performed without depending on others as there is online filing of forms as well to keep the IBBI updated about the undergoing insolvency cases in the NCLT.
Talking about the lockdown she also said that IBBI has from time-to-time made endeavour to streamline the regulations to address the inadequacies, shortcomings or any challenges which the market is facing and as such recently the CIRP and liquidation regulations were amended to just clarify that the period of lockdown would not be counted for the purpose of completion of the timelines.
Sharing his views in the webinar, Sumant Batra, Chairman, ASSOCHAM National Council on IBC chairman said that disruption caused in IBC by Covid-19 should be used as an opportunity to think out of the box and reinvent. He added, “The main priority of insolvency professionals should be to focus on two things - stabilising the operations to pre-lockdown stage and prepare a strategy to reduce costs of management and keep high accountability in this area.”
Anil Goel, Co-Chairman, ASSOCHAM said, “The losses may be assessed by banks and finally approved by a high-level nodal agency set up by government and a good part of interest and principal should be considered as subsidy in case the business is revived and loan is repaid on time.”