Why banks are rejecting loan requests ? In COVID 19 New Norms

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Why banks are rejecting loan requests ?






  • With covid-19 hitting incomes and jobs, lenders have become more circumspect about the repayment capacity of borrowers and tightened norms .

  • Those working in sectors directly affected by covid, new borrowers and those having low credit scores are the worst hit .


Ahmedabad-based Mohit Jain, 29, applied for a home loan in February at a housing finance company, but his application was rejected recently. The loan processing got delayed when Mr. Jain, an Business exhibition Stall Designor , changed his job in March and the country went into a lockdown. In May, he reopened the process, but a few days later his loan application was rejected. “They denied the loan saying the norms had changed," said Mr. Jain , who was not given a specific reason.
Pankaj Upadhyay, 54, who lives in Nadiad, a small town Gujarat, applied for a personal loan with the same public sector bank with which he has had a salary account for the past 12 years. The bank denied him the loan, saying that his company was an unregistered one.
Mr. Jain and Mr. Upadhyay are among the many borrowers who have taken to social media recently with similar complaints of loan rejection. With covid-19 taking a toll on people’s jobs and income, lending institutions, including banks, have put in place stricter lending criteria.
We tell you what these norms are and what you can do to avoid getting your loan application rejected.
Tightened norms
Before sanctioning a loan, banks take into account several factors such as your credit score, age, income and the company and sector you work for, among other things.
“They are re-evaluating the repayment capacity of the borrowers. There is greater scrutiny of income sources compared to earlier,"
Norms have been tightened for secured loans such as home loans as well. “In case of secured loans, category A company (large corporates) employees are being considered. Self-employed people are finding it difficult to get loans," said Raj Khosla, managing director, MyMoneyMantra.com, a financial services provider.

Those working in covid-19-affected sectors will also find it difficult to get loans.
Loan Rejected

The way out

So what can you do to avoid loan rejections and increase your eligibility, especially if you are planning to take an asset-backed loan such as a home loan .

Clear existing dues: 

Under a parameter called fixed obligation to income ratio (FOIR),













lenders consider the applicant’s fixed obligations like current EMIs to determine the eligibility. Earlier, lenders would not look at EMIs of ongoing loans that were about to end soon, say, 
in six months. So prepay the last few EMIs of an ongoing personal or consumer durable loan before applying for a new loan.

Check your credit report: 

Public sector banks usually lend to people with a credit score of 700 or more. The requirement is higher in some private banks.

You cannot do much if your credit score is low due to default or missing payments, but check your credit utilization rate. Lenders would prefer if your credit utilization rate is around 30% but the lower it is, the better it is for you. Clearing credit card dues is one way of lowering it.
Take a joint loan: 
A co-applicant could help increase your loan eligibility. So consider taking a loan jointly with your spouse. Some banks also allow relatives such as father, mother, son or daughter as co-applicants if they are working.
Check if the bank has a tie-up with mortgage guarantor: 
The eligibility criteria for home loans offered by lenders with a tie-up with a mortgage guarantee company is more relaxed. “Mortgage guarantee firms tie up with lenders to offer loan products. Both partners work out the eligibility criteria and other modalities related to the loan. As a mortgage guarantor can take more risk than a bank, such loan products have relaxed eligibility criteria. A borrower can get 20-30% higher loan amount," said Sovan Mandal, chief commercial officer, India Mortgage Guarantee Corp. (IMGC).


Regards,

CA Pankit A. Shah
( ACA , M.com ) 
Chartered Accountant

Office Address :- 

35, 4th Floor, Shree Krishna Tower, 
Near Mithakhali Six road,
Opp. Navrangpura Jain Derasar Lane,
Navrangpura, Ahmedabad-380009.

Office Ladline :- 079-4898 5464
Mobile No. :-  +91 92272 30943

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