Waiting For A Crisis?

Unsecured credit, such as personal or consumer durables loans, has made a strong comeback. And so have the risks.

- Anand Adhikari

A credit officer of a non-banking finance company, or NBFC, was baffled by a young woman’s response to a question about the end use of a personal loan for which she had applied. “I need it to buy a Louis Vuitton bag,” she said, without blinking an eye. Louis Vuitton handbags cost between ₹50,000 and ₹3 lakh.

Gone are the days when a personal loan was a social taboo and taken only in an emergency. Today, people are borrowing for child’s birthday, foreign travel, purchasing white goods, home improvement, in fact every spending that would seem discretionary to most. And why not? Loans are, after all, a click away. If a bank slams the door on you, there is always an NBFC you can turn to. And if they, too, say no, you can always approach the new online peer-to-peer lenders. After all, you live only once. “In today’s world, if you haven’t taken a loan, people will probably think your credit score is not good,” says Manavjeet Singh, Founder and CEO of Rubique, a platform that brings borrowers and lenders together with the help of technology. “Consumers are looking for instant gratification,” he says.

After the slump post the 2008 financial crisis, when a number of banks and NBFCs shrunk their unsecured loan books in response to huge defaults, the tide has turned, and that too strongly. Unsecured loans, both personal and for buying consumer durables, are back. So is the risk of banks and NBFCs taking a big hit if a chunk of these loans turns bad, just like it did after the 2007/08 financial crisis.