Credit driven growth
Apropos the editorial ‘Default concerns’ (January 24), the spike in personal and consumer loans provided by domestic lenders, post the pandemic, shows that Indians are becoming more credit hungry and are willing to acquire assets on credit. This augurs well for the economy as a whole from the perspective of consumerism and asset creation.
For lenders too, this is a welcome development as they get better returns on these loans compared to their secured counterparts like home loans. However, to curb unchecked growth of unsecured loans, with its potential for a spike in NPA levels, the RBI has increased the risk weightage for these loans from 100 to 125 per cent from November 2023 onwards. Additionally, the apex bank needs to closely monitor the unsecured lending of all lenders, including that of NBFCs.
V Jayaraman
Chennai
Pricing of loans
With the change in living style and savings pattern of the younger generation, lenders are now in a fix in firming up their assets portfolio backed by concrete assets for the money lent. Lending money under the personal loan category would push the lender’s asset book but is more risky that attracts cent per cent provisioning, which would impact the bottomline.
Debt service coverage ratio, debt-to-income ratio and other ratios such as liquidity and solvency are more suited for corporate and business lending. Resorting to differential pricing of loans based on an individual’s savings behaviour and constant income flow is a good practice for identifying the right borrowers.
RV Baskaran
Chennai
Economic growth
The reported 7 per cent GDP growth does not seem to be reflected in the quarterly results of the listed companies so far. One indicator of the economy doing well is the increase in FMCG sales. When there is not much topline growth in companies which provide items of daily use like soap, shampoo and edible oils, the message is clear. Banks too fail to show growth in their books. So where are the people spending money? Possibly the stock market, which is witnessing a sustained bull run.
Anthony Henriques
Mumbai
Tax collections
This refers to ‘Direct tax-to-GDP ratio at a high, cost of collection down’ (January 24). It is heartening to note that direct tax collections (income tax and corporate tax) are rising and the cost of collections has come down too.
This means the resource position of the government is comfortable. It can re-allocate it and maximise the welfare of the people. But, at the same time, it should be remembered that payment of direct taxes can lessen private consumption expenditure to that extent, leading to a fall in private investment, employment, income and output. The government should chip in to fill the gap.
S Ramakrishnasayee
Chennai
IBC is delivering
Apropos ‘IBC-resolved firms are faring well’ (January 24). The Insolvency and Bankruptcy Code has hastened the resolution process of distressed companies with improved mechanism to resurrect them into going concerns. Increased sales, hiring and profitability in the post-resolution period of the distressed companies are evidence of the IBC’s efficacy.
NR Nagarajan
Sivakasi, TN
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