Bank loan eligibility norms tightened during COVID-19 crisis

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Loan seekers from COVID-19 hit sectors are finding it difficult to get their loan application processed.

COVID-19 crisis has led to significant supply and demand disruptions, resulting in tightening the loan rules over the past few months. Loan seekers who work in aviation, hospitality, and other sectors affected by the crisis are finding it difficult to get loans, especially in private sector banks. Lending to retail borrowers who are employed in COVID hit sectors are cautiously monitored by the banks.

The smaller amount and relatively higher interest rates are imposed on the borrowers employed in the sectors. Loan scrutiny is increased for sanctioning a loan to self-employed people, who are taking a bigger hit during this crisis.

The sectors under scrutiny are hospitality, real estate, travel and tourism, entertainment, textiles, etc. Unsecured lending to MSMEs and retail is dealt with extra caution by the banks. The strict lending norms are reflected in credit growth. Lending to medium size enterprises was down by 5.3 percent and credit to micro and small Enterprises contracted 3.4 percent.

Employees in low impact sectors like pharmaceuticals, technology, food processing, health care, etc are being looked favorably by the banks. The priority will be given to those sectors who will be able to move through the shocks steadily as it will define their ability to pay back in the future.

There has been no change in loan ticket size for eligible borrowers from growth or low-impact segments like retail.

The interest rates are much lower as compared to pre-COVID rates as there is excess liquidity in the banking system. But in case the repayments falter, the lending norms may be further tightened by the banks after loan moratorium ends.

The first repayment figures for the moratorium portfolio will be available to the lenders in September and October. Hence, these months are critical for the lenders because the equilibrium in respect to lending policy and pricing will be achieved only after this. The banks are planning to sharpen and rework the existing norms and new norms for lending to the segments in the new normal after the moratorium ends.

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