Financially stressed due to Covid-19? You may find it hard to get loan

Lenders are treading cautiously, and in some cases even cancelling previously sanctioned or pre-approved loans

Banks and housing finance companies (HFCs) are treading cautiously in disbursing loans and even cancelling previously sanctioned, or pre-approved, loans for customers who have become economically stressed after the Covid-19 crisis.

“Those customers who were sanctioned loans in March, based on a certain assessment of repaying capacity, and could not avail of the loan immediately, we are revisiting such cases to ascertain the adverse impact on their cash flow position, if any, to ensure repaying capacity,” said Deo Shankar Tripathi, managing director and chief executive officer of Aadhar Housing Finance. 

During the past two months, many customers suffered loss or reduction in their regular cash flow due to salary cut by employer, loss of jobs or stoppage of business. Even as the businesses are reopening, re-assessment of cash flow is important before a loan can be disbursed, otherwise it may become a non-performing asset from the beginning. Hence, lenders are having a re-look as far as repayment capacity is concerned and additional due diligence is being done before disbursing the loan.  

“It is prudent for customers also to defer availing non-business loans, say home or personal loans, for some time till business restarts,” Tripathi said. 

This trend is particularly visible in case of new housing projects where disbursal is linked to completion. Lenders say developers have started pressuring homebuyers for fresh loans for the next instalment, without which developers are threatening non-completion of projects. However, lenders are insisting on revised salary structure of borrowers and in some cases refusing to lend loans based on either the borrower’s capacity to service the loans or the status of other borrowers of the projects. This is because if a majority of borrowers are not able to pay the builders, the project may not complete. 

“First, if the person has lost his or her job, we cannot be disbursing fresh loans because the terms of eligibility have changed now. If the borrower is okay, but if we see there is a salary cut, or if we see borrowers in the project are not paying to the builder, then also sometimes we are not disbursing loans for the project,” said a banker requesting anonymity.  

A senior executive of a housing finance firm said the advice to the borrower in such cases is to delay paying to the builder and pay late payment interest instead till the situation normalises. 

“Our experience says no developer completes a project on time. Say if you take a Rs 20 lakh loan now as an instalment payment, and get into a bad financial position tomorrow, we are not going to give you fresh loans till you recover from your position,” said the executive, who also requested anonymity.  

In that case, the customer is not going to get the house on time but is leveraged beyond his or her means.  “This will damage your credit history after the general moratorium environment is over and you will struggle to get fresh loans even when you have recovered,” said the executive.  Lenders also say people who have availed of moratorium  are automatically a risky zone for the lenders when it comes to disbursal of fresh loans. 

However, lenders say the financial impact is mostly visible in mid-level and below employees. Mid-senior to senior employees are relatively sound financially, or have other means of ensuring debt serviceability. Lenders are not very hesitant in lending to this segment.   “The trouble is mostly visible in certain pockets, such as with people working in travel and tourism, airlines, auto sectors. We are generally cautious with them, otherwise other lending activities are going on as usual,” said the housing finance executive.  

However, the data of this impact would be visible only when the banks or HFCs publish their September quarter results, and not before that.  

Meanwhile, lenders are reaching out to customers if they want any help with moratorium.  “Our sense is those who have availed of the moratorium will be in a better position to pay now and those who have not and were paying their obligations may need the moratorium at this point in time,” said Tripathi.