In the previous post we have discussed the "unprecedented" crisis the pandemic submerged us in, and how it could create new challenges. In the credit underwriting process, it is absolutely essential to assess the ability of a certain customer to repay the loan he is applying for. In the crisis situation when everything is undergoing uncertainty, it is even more essential for the banks and other financial institutes to assess the risk factors. We are continuing further in this post.
Changes to be noted during credit underwriting process in banks
The economic growth was somewhat centered
round the consumers, but, this segment suffered severely when the pandemic hit,
forcing the world to retreat indoors and opting for alternatives to remain
functional. Consumers suffered in terms of income, the spending capacity was
down. Now, let's find out how middle class different segment was hit.
- The salaried individuals to some extent fared better as a significant percentage of them continued with their jobs and they saved as well.
- The second segment was not doing well and there was a drop and their ATM and digital activities also registered a drop.
- The last segment took the worst hit, there was no saving money, lack of income and an increase in expenditure suggested that there is a red alert.
The lower-class consumers-
- Lack of income and the pandemic situation forced many of them to resort to their EPFO.
- The migrant laborers who earn a
living on a day-to-day basis were severely hit. The situation forced a higher
demand for credit.
Add to this the facts, the demand is high
for medical supplies, the travel industry came to a halt because of the ban,
businesses who want to survive have gone digital.
Now the digital lending platform is seeing many changes, people are no
longer making big investments so, the demand for a long term loan is not there.
People are now resorting to small loans which are unsecured loans.
The digital lenders have to keep an eye on the changing scenario now to be able to
gauge the risk factors.
You can read the first installment here at:
If you are curious to know more, you can also read the
full blog here at: https://www.algo360.com/early-warning-signals-for-collections-part-2/
