Never borrowed before? There's a price to pay

livemint.com:

personal loan, among others—in June fell from a year ago. Experts said this could be a result of banks turning cautious on such borrowers, especially after small-ticket personal loans have started exhibiting increased delinquencies. “Typically, when lenders want to tighten their risk filters, the new-to-credit customers are the first ones to be filtered off.

Subsequently, the preference of the lenders is towards salaried customers and borrowers with higher bureau scores," said Anil Gupta, senior vice president and co-group head of Icra Ltd. Lenders, Gupta said, may also tighten their risk filters by reducing the loan-to-value ratios or increasing the income to equated monthly instalment (EMI) threshold. As a result of fewer approvals of loan requests, the share of new-to-credit customers in overall loan origination in the April-June period has shrunk 400 basis points (bps) year-on-year (y-o-y) to 15%.

The share of below-prime customers has declined by 100 bps, while that of prime-and-above has increased by 600 bps. Some are reading lenders’ caution as a measure to protect themselves against a possible fallout of the post-covid lending binge. “It is more about tightening the underwriting norms at banks and even NBFCs (non-banking financial companies)," said Bhavik Hathi, managing director at Alvarez & Marsal.

According to Hathi, post-covid, there was a rush to grow the loan books owing to increased liquidity. Since banks were staying away from corporate loans, retail and the unsecured category in particular was the low-hanging fruit. “Probably, there has been some amount of over-leveraging in the process.