How COVID-19 Changed India’s Loan Management System
Loan management covers a very wide range of business management, including credit card companies, personal loans, brokerages, investment firms, and more.
The importance of loan management is on many levels because, during crises like this, effective loan management can be the source of money flowing through the economy.
Therefore, it becomes inadvertently misunderstanding the difference between pre and post covid scenarios as two worlds, and its impact on the financial sector is profound, in the context of utility, recovery and macro scenario. Marlet.
To effectively understand the scenario, one can have multiple perspectives, which would provide deeper insight into the transition and help in understanding the multiple folds of it.
The customer’s point of view
There is a massive shift in consumer behavior in the pre-pandemic to post-pandemic scenario.
Before COVID-19, there was an approach of stability and openness which is seen in the increase in sustainable consumer lending, use of credit cards, etc., where the consumer was open to the ease of loan from banks and open to repayment of money which is completely changed now.
Research on borrowing habits shows that after COVID, 46% of borrowing was done primarily to run the household, 27% of borrowers borrowed to repay previous loans, and 17% borrowed because they lost their debt. use. Most people chose to borrow from relatives.
Although there were easings and easements provided by the government to combat this problem like open market operations, moratorium on loans, etc., it only gave the payer respite.
The economy is under constant threat and the threat of another blowout is slowly recovering through extensive litigation and other means of recovery, acting as icing on the cake for declining consumer behavior.
The service provider perspective
The unprecedented situation has largely affected the service provider, as the market has started to open up through credit loans, personal loans, consumer durables, etc. and in early February 2020, the service provider became more of a debt collector, and less of a banker, as delinquency and fraud cases increased.
Cautious spending and unemployment changed spending and market trends. The first 21-day lockdown alone saw a 42% increase in digital payment and online lending was seen. It’s an indicator of the need to be technologically and digitally efficient in the Post COVID world. But there is a drastic deterioration in the quality of existing portfolios and there will be bad debts.
However, on the positive side, a study by University College London has shown that post-COVID microcredit systems in developing countries will be booming as traditional lending systems will not be able to operate with the same efficiency.
Thus, giving way to the banking system, but on the other hand, the entire pre-existing risk dashboards need to be reworked, credit history alone cannot be the risk assessment, other factors like the industry in which they work and the finances of the borrowers must be taken into account to decrease the delinquency rates.
The service provider in the post-covid scenario is expected to make way for co-lending, which is an arrangement where NBFCs facilitate the loan origination and collection process while the partner bank hosts the majority of the loans. This is intended to address growth issues based on NBFC funds.
The Macro Market Perspective
The market is the stage where the actors, service provider and customer play their roles, which makes the perspective of the market multi-faceted. The country’s financial sector is in free fall, but the pandemic has helped the sector test its waters, in almost every area.
For the overall development of the country, digitalization has been a difficult step for the economy due to a lack of education and other socio-economic factors. Research has indicated that during the pandemic, online and digital media have exploded.
More and more fintech and credit companies will use government interventions for the digitalization of consumer credit by enabling instant and hassle-free loan disbursements by leveraging technologies such as artificial intelligence and machine learning.
Since then, market behavior has changed with a decrease in luxury-based consumption and an increase in need-based borrowing such as medical emergencies, education loans, rather than indulgence-based borrowing.
In summary, digital and technological progress is the way forward for loan disbursements and loan management in the post-covid world.
In addition to better “know your customer policies”, to reduce delinquencies and understand that simple and efficient loan disbursements are the most efficient and easiest way to move money through the economy, indirectly helping the economy recover from the loss.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)