16063In view of reduced inflation and expenses, will it be right to invest in IT stocks?

In the wake of rising unsecured-loan portfolios, banks have started to demand higher credit score from potential credit card customers in order to further tighten their risk assessment procedure, Mint reported.

While the average credit score used to be around 700, many lenders are now looking to tweak it to as high as 780 for registering any new customers. The thumb rule for credit card companies is – higher the credit score, less risky the loan applicant. Overtime, this rule has become an important parameter for risk assessment before onboarding a customer to sell credit products or loan sanctions.

“We have raised our credit score requirements and are telling only those customers to apply who meet that criterion. However, it is difficult to quantify how much it has been raised to as it varies and is also based on the industry where he or she is employed,” a private sector banker was quoted in the report.

With the outbreak of Covid-19 infection last year, an unprecedented rise in bad loans was observed across the banking industry. SBI Cards reported a 4.29% rise in bad loans during its September quarter. However, it was able to bring it down to 1.61% in the December quarter.

“The pandemic and subsequent lockdown caused a major upheaval across the banking sector with loan defaults on a high as several people lost their jobs and salaries were also cut. In view of the same, banks have rolled up the credit score in order to minimise bad loans. This will also reduce the pressure on bank employees who have to deal with a long list of delayed and outstanding payments on a regular basis,” a senior employee from State Bank of India who didn’t want to be named, told Money9.

The change in credit score demand has resulted in a sedated growth in outstanding pool of credit cards in the country. According to Reserve Bank of India (RBI), outstanding credit card pool touched 4.6% during March and December last year. In 2019, this growth was quite high at 17.5%.

Meanwhile, it is important to note that banks are not only expecting a higher credit score from customers but they seem to be rather reluctant in issuing cards to individuals hailing from specific sectors like the aviation and hospitality industry. Since these sectors have suffered massively due to the pandemic, banks may want to avoid such portfolios until a solid rebound is observed in their business.

But for those who managed to repay their credit loans well in time last year have been rewarded too. Banks are now offering them  loan against credit cards.