Individual borrowers may struggle to repay loans on time due to coronavirus outbreak: Assocham

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With outstanding personal loans worth more than Rs 25 lakh crore, industry body Assocham on Thursday flagged concerns that borrowers could struggle to make timely repayments and maintain their credit ratings. credit due to the coronavirus outbreak.

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In a report, Assocham said that after experiencing strong year-on-year credit growth of 17% at the end of February 2020, outstanding personal loans stood at around Rs 25.32 lakh crore.

It is difficult for borrowers to pay their EMIs on time without default and maintain their credit ratings, he noted.

Basing its analysis on the latest data from the RBI, Assocham said the housing, car loan and credit card segments made up the bulk of outstanding personal loans.

Although components such as consumer durables posted strong year-on-year growth of 43%, the base was small with Rs 6,495 crore outstanding.

“As we drill down into the data, the areas of concern appear to be housing, credit cards, car loans and education loans. Although the RBI has granted a three-month moratorium on EMIs, the deferment comes at the cost of compound interest as the term extends,” said Assocham General Secretary Deepak Sood.

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The industry body said credit card spenders were somehow leading the demand surge and were sitting on Rs 1.11 lakh crore outstanding at the end of February, registering a significant annualized growth of 33%.

Similarly, the housing sub-segment witnessed an annual expansion of 17.1% with an outstanding amount of Rs 13.30 lakh crore.

Even before the coronavirus outbreak, car loans were serving as an engine to somehow revive car demand with outstanding loans of Rs 2.21 lakh crore with a growth of 10.3%, he said.

The outstanding amount of other personal loans stood at Rs 7.17 lakh crore with a growth of over 20%.

Assocham said that although education loans showed negative growth of 3.4%, the total outstanding amount was large enough at Rs 66,563 crore to pose debt servicing risks, which would only increase following the deterioration of the employment situation due to the lockdown and the subsequent costs to the economy.

”The outstanding loans to be repaid in the different terms have different interest rates and penalty clauses. For example, credit card default leads to huge compounding costs. Also, there is not much clarity regarding credit card outstandings in reference to the RBI moratorium,” Sood said.

He further stated that personal loan borrowers still remain concerned about maintaining their CIBIL credit scores.

“Most personal borrowers are young professionals who have long professional careers as well as personal ambitions ahead of them. We need to make sure their concerns are addressed and their credit ratings are not compromised. After all, they are a key part of India’s history,” said Assocham’s secretary general.

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