It was Friday evening, I left work early and just when I got into my bike I had a call. I assumed it to be my mom who calls me at this time to remind me to drive carefully while returning back home and I didn't answer the call since I would be back home within half an hour. Reaching home I checked my phone and found the call was from Blue dart courier. I immediately checked my upcoming orders from Amazon and confirmed that the shipment is due next week and I was not quite sure what this courier is all about. Then I called back the number and was told by the courier person that I had a parcel from HDFC and he had called me when he was near my home and I didn't receive the call.
I was thrilled at that moment when I heard that I had a parcel from HDFC since I had applied for a credit card there just a day before. I forgot all my anger towards the banking system in a moment since i assumed that i finally got my credit card. I had requested HDFC just yesterday that my CIBIL score is not the reflection of my credibility, the standard dialogue that I had been telling everyone over the past year or so.
The courier boy told that he had left my area and would deliver the courier only on Tuesday, But I told him I will come wherever he is and I want to parcel today. I reached him where he was and was found the package from him with the title HDFC life insurance. All my joy was lost in a moment, however, I calmed down convincing myself that I will get the credit card next week.
As part of new found financial discipline, I had purchased a life insurance Policy last month and had received the Policy document from them and it was not the credit card which I had dreamed off.
I have defaulted on an education loan which I took for my undergraduate course and the same is now reflecting in my credit score which stands at paltry 547. Once after I got job I visited the bank asking them to give me an option to convert the same to EMI, which the bank was not excited about. They told me they will get back to me, however I have never heard from them since then nor did I go to the bank negotiating for EMI.
Since then I had been applying for loans in many banks, all of them have rejected the loan and when the direct method didn't work out I went through loan agents ready to pay the hefty commission.
The commissions ranged from 5 to 6 percent of the loan amount. Most of these agents do have a contact in banks who for a bribe will smoothen the loan application process. But nothing worked out through agents as well. I once paid an agent upfront an advance commission believing his words only to see a rejection from the bank.
An agent Amir (name changed) running a loan agency in Robertson road, Bangalore took an advance which included his commission and processing fee towards loan and other charges. I believed all the words he used to say that loan will be processed soon. He made an application on behalf of me in Can fin homes KR Puram Bangalore through his close contact there. I had been telling him that I have a low CIBIL score which he told would not be a problem. However, after 3 months of procedure and delay, I was said that my loan is rejected.
A Google search about loan agents will give you access to plenty of such agents who are either cheaters or have a close contact working in a bank who will push the application. They take advantage of people with low credibility and make their living. The bankers in the wake of NPA crisis are now careful before giving the loan, there are high profile corporate defaults which everyone knows. However banks are still on a lookout to increase their share of retail loans. In order to meet their targets they lend to borrowers with risky credit history. These lending's usually come through agents. Government must Curtail the activities of these agents.
However there is a new generation of people who is caught in the wrong web of NPA Crisis. The students who have taken education loans and have defaulted for various reasons. No Loan is given to them and they are grouped on same terms with habitual defaulters.
Agents and middlemen prosper only when the banks are not approachable. Youngsters fear going to the bank after default for negotiation. But sooner or later they will be caught in the NPA crisis. They usually realise the grave situation they are in only when they make their first credit card application only to be told that their application is rejected for want of good credit score. Banks must educate the people and take proactive measures to reach to the defaulters before reporting them to credit monitoring agencies.
These Student loans must not be part of NPA and should not be reflected in the credit history. It is true that the banks must recover the loans given to students , but the students should be given an opportunity to restructure their loans. The borrower would have defaulted mainly due to unemployment or underemployment. After the loan becomes NPA it will be impossible to convert it to EMI. RBI must formulate a policy towards the default in education loans and there must be a mechanism to bring youngsters out of this crisis.
When banks refuse to give loan, people will look for alternative ways to get money including approaching local money lenders who charge hefty interest rates. Most of these money lenders don't give an option for repaying in EMI. They just need monthly interest. These entire mechanism destroys the goal of financial inclusiveness. The student before he could earn any money is caught in a spiral circle of debt.
The CIBIL score should be calculated differently for education loan defaults. The ability to repay the loan has been hampered by various factors including unemployment and underemployment and there are cases where a person starts earning decent salary only after a particular time in his career. The standard repayment period which usually starts from 6 months after completing the course is impractical.
The statistics of student loan defaults are not readily available, unlike the corporate defaults that we hear every now and then. However, these are crucial numbers that the policymaker has to take in consideration.
The government is struggling to keep upto its promise of providing employment and the unemployment numbers are growing by the day. Why should not the government consider making the life of recently employed more fruitful by giving them the opportunity to repay their loan and restructure it?
The banking sector is in a midst of many issues and the clean up of the balance sheet is in process. The corporate default crisis where once a small problem and it has grown out of proportion now. The student education loan crisis is turning out to be a problem which needs adequate measures, else the banking sector has to see a bigger problem.
The author can also be reached at avilralsalins@gmail.com
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