As mentioned in our previous blogs on moratorium – We designed and constructed a survey, to interview industry leaders, with an aim to learn from their experiences of offering moratorium to their customers. Interviewing several business leaders at mid- size to large-scale, non-banking finance companies, housing finance companies, lenders with financial inclusion focus, and newer Fintech companies, our study scope encompassed all retail lending products.

The objective is to learn from these approaches, experiences, outcomes, and bring you relevant insights, from wide-ranging industry practices, and their impact on the credit culture.

Click the above link to download and access the survey report

Technology is meant to make life easier for us, protect us and our data and ensure privacy of personal information. From our simple hand-held phones to the most complex computers there is a need to manage privacy and not allow unauthorized access, usage or worse still…abuse!!  “PASSWORDS” – the magical answer to this need have traditionally worked as keepers of our privacy – personal, companies or Governments. 

Unfortunately, the progress of technology goes hand in hand with the progress of ways to break into systems, hardware and software. And one impactful way all this affects us is identity thefts. Identity thefts, simply defined, is when someone else illegally gains access to your information and uses it for wrong reasons. 

One of the biggest reasons for identity thefts is the easy access to your passwords! Interestingly, you could be the biggest accomplice to the crime!! 

Just think – you tend to forget your password – so the easy solution, write it on a “post it” and stick it above your desk. Or create a file with all your passwords and keep it on your desktop, without password protecting the file. And the worst, write the password on a piece of paper and loose the paper! And God save the IT person in your office, who keeps prompting you to change your password regularly. 

And then comes the justification -” there are so many passwords I need to create – how do you expect me to remember them all”. 

Another universal reason for password thefts is the sheer predictability of the choice of passwords. Research has shown that creativity hits a low when it comes to choosing passwords and 83% of people use name of spouse, child, sibling, parent or pet and dates of birth as the password of preference. How easy is it to figure that out specially when the “thief” is someone who knows you!!

If I were to jargon this syndrome, I would call it “lazy password syndrome – LPS”

We humans are strange creatures – we get lazy about things that are critical and important to us – exercise, shedding egos and passwords!!

Your cyber security depends on your choice of passwords – here are a few dos and don’ts:

• Understand the importance and seriousness of having “good passwords”
• Do not oversimplify or over complicate the multiple passwords – both will work against you!
• Be disciplined – do not leave these passwords within easy access
• Change them whenever you feel that the password has been compromised, or you had to share with someone.
• When you need to change – you need to change! Do not ignore the prompt from your IT Administrator. 
• If you need to keep a document listing your passwords, make sure you “secure” the file with a super safe password. 
• If you want, build a pattern into your choice of all your passwords – just don’t make the pattern predictable!

Technology and multiplicity of devices, accounts and applications will push the boundaries of your laziness… don’t succumb, the price you pay will be much more than you think, fight the LPS – it’s to your benefit.

Marriage is a union of two souls and from a financial standpoint, it means saving for the future, buying a dream home or planning for your child’s education. Marriage can also have an impact on your credit score. Whilst, your “marital status” as such does not impact your credit score, there are certain myths that need to be demystified.

• Merging of credit reports

Credit scores and reports is an assessment of your credit standing only. Although marriage unites two souls, it does not unite two credit histories.

• Your new last name will erase your credit history – This one is for the bride!

Ideally, after marriage you should report your new last name to all the banks from which you have borrowed till date. This will ensure that your past credit history gets linked to your future credit history. You would also not need to build your credit history all over again from scratch!

• Your spouse’s poor credit history impacts your credit score

Just like how credit reports do not merge after marriage, your credit score would also continue to remain independent of your spouse’s credit history. Unless, you have taken a “joint” loan and that loan is in default, this would not happen.

• You automatically become an “Add on card holder”

Getting married does not mean that you would be added as a add on card holder to your spouse’s credit card. Unless you apply for a add on card, this too would not happen,

Like marriage is the union of two souls, divorce is the termination of this union. A divorce can turn out to be an expensive affair to you. Here is how!

• You automatically are free from your “joint” liability if you divorce

If you have entered into a joint loan agreement, then you are both on the hook. A divorce does not dissolve the joint liability of repaying a loan. You would continue to remain as responsible for the repayments as you were when you were married.

So go ahead; many reasons to get married….just beware of these credit myths!

I hope you found my first blog relevant and it made useful reading.  Taking reference of the trinity analogy, I believe we had yet another unholy trinity event. Rajasthan experienced an intense locust swarm invasion attack, affecting about 90,000 hectares across 20 districts, which disappeared as mysteriously as it appeared.  While the Corona pandemic continues, we had two cyclones, back to back.  The Orissa – West Bengal cyclone was devastating and caused many more deaths and much more damage – the more recent one on the west coast was less severe, and relatively less damaging.  The fact that it finally skirted the city of Mumbai surely helped – given Mumbai’s population density.

Unlock V 1 has been rolled out and whilst the number of cases testing +ve have not reduced, it is still early days to determine if there will be a spike, a steady rise to a peak, or a flattening of the curve.  Several people have expressed different views and an eminent industry captain has opined that we did not flatten the cases curve but flattened the economic growth curve eventually.  There seems to be some early optimism and we must be cautious – a second spike, uncontrolled abuse of the need to be socially distanced and a collapse of self-discipline – is very much a key operative in this world.

Again, in keeping with my theme of trinity, here is the first of them for this blog. We recently conducted a thematic discussion on Moratorium, using a survey, amongst senior stakeholders (Lenders, Banks, HFC’s, Small Banks and NBFC’s).  An initial read of the responses throws up some interesting conclusions:

1. Diverse views on “Opt In” vs. “Opt out” (for offering the Moratorium).
2. Diverse views on how to treat March 2020 EMI, if it was paid before or just after the 27th March announcement of the 1st Moratorium.
3. Most agreed that there should have been more clear standard process, prescribed to minimise confusion in the borrower’s decision-making process.
4. Finance, IT and Collections are the most impacted functions within the lender’s organisation.
5. Moratorium 1 does not necessarily mean an automatic Moratorium 2 – there may be some additional, different, process required to be followed on this occasion.
6. Expect changes in Underwriting Policy and Collection Strategy post Moratorium.

Truly interesting perspectives from these industry leaders and as we finish a few more of these thematic discussion surveys, I will share an analysis in my next blog

Second aspect of the trinity is the Maths behind the Moratorium options.  Interest free Moratorium, charge simple interest for the Moratorium period, charge interest on interest, should one take the Moratorium (Moratorium 2, that is), understand the financial impact post the Moratorium getting over, balancing your current situation and cash flows with a longer term perspective and so on. There are many calculators put up by the lending institutions and also by others and it is always prudent to take a decision regarding availing the Moratorium or not, after evaluating your options.

We will soon be launching a Moratorium Calculator which will encourage borrowers to evaluate their options, understand the maths and then decide. We hope the borrowers will find the calculator useful and simple to use.  With the complexities involved, to unravel them, and then evaluate probably conflicting thoughts and views to finally decide is the next challenge before lenders.  My advice, to all borrowers, at the risk of repeating it:

1. Do the maths, specially from an independent calculator, and then take an informed decision.
2. If your cash flows, permit – DO NOT AVAIL THE MORATORIUM – KEEP PAYING.

Now the third aspect of our trinity for today. A case has been filed in the Supreme Court by an individual, seeking relief from paying any interest at all on the impact of availing a moratorium. The hearings are ongoing, as I write this the Supreme Court has asked the Finance Ministry and Reserve Bank of India to file a joint response by next week. This is a classic battle between the banks and other lenders who are charging interest on the EMI’s under Moratorium and in many cases, also charging interest on interest vs the individual who has filed the case.

The three options for the Supreme Court to decide on are:

1. No interest to be charged on the Moratorium EMI’s – seems unlikely, as it would cause distress to the financials of the lenders?
2. Charge simple interest on the opening balance from March 1 till the date the customer availed the Moratorium.  Charge simple interest on this amount until it is paid off, and then all goes back to normal – may be the most implementable solution, keeping the interest of all stakeholders in mind?
3. Allow the lenders to continue “as-is”, what almost all of them are doing – roll up the Moratorium EMI’s, capitalise and recover over the term of loan – interest on capitalised interest – current practice may be looked upon unfavourably by the Supreme Court?

The matter is in the Supreme Court – and if there is a change from what most lenders are doing currently, then there will be an operational chaos (specially on the treatment of whatever the lenders did prior to the Supreme Court’s decision).  Financial stress to the lenders, India’s economic outlook, and a precedent which may not be the best to quote.  Imagine if waiver of interest becomes a norm and then the consequent implications.  We will know soon and the uncertainty shifts from not knowing what to do, to sorting out the consequences of the decision. Fingers crossed. The classic battle between economic considerations and human livelihood consequences.

Moratorium is getting increasingly complex – maybe it is time to have a Moratorium on Moratoriums.

Will be back soon with the third of my blogs – until then be safe, take care and stay well.

This is the first of a series of initiatives we are taking to address the moratorium announced by RBI.

The focus is to create awareness amongst borrowers, more the retail borrower, and thus enable a more informed decision and also to put forth an independent unbiased view of the impact and consequences of the two stage moratorium. At this stage, of course we do not know if there will be a third moratorium and if so, in what shape and manner.

COVID, Corona, social distancing, masks, sanitizers, ventilator,  isolation, vaccine, China, USA, Lockdown …. I could go on and on with the new vocabulary that has been our life over the last several months.

The world in general and we Indians, are grappling with the new normal – and it is fast becoming just the normal – nothing new any more! A new dimension of a World War, literally against an unseen enemy, which has enveloped every nation on the planet, a War which no one knows how and when it will end and importantly what devastation it will leave in its trail. And worse, we don’t even know how to fight it as yet.

The trinities  to this War – the first is HEALTH. As the virus spread its deadly grip across the world, people fell ill, got hospitalised, got put on ventilators and tragically many died. The numbers keep increasing  – fortunately, the number of recoveries too. No one was spared, rich..poor, male..female, young..old – as we all struggled to grapple with a no precedent ever global event. From regulated lockdowns to self discipline and conflicting approaches and unverified solutions, we fight on.

Not surprisingly, the second  of the trinities is ECONOMY. Global economies have imploded. Leave alone the macro numbers of recession, de growth, GDP shrinking, several sectors in terminal decline and business models being redefined, there is a much bigger and serious consequence – loss of jobs, loss of income and businesses and sectors shutting down and the consequent impact on people – you and me – the average person, who worked honestly to put food on the table, educate his children  and give his family a better life – a life that is threatening to come crashing down. Lay offs, lost job,  reduces income, struggling cash flows, bleak and uncertain financial future – all paint a fairly dismal and no light at end of tunnel picture. In this entire scenario, comes the loans and liabilities people have taken on, in better times and now are struggling to service. As they prioritise their limited resources, often the first thing that drops of the radar, is servicing loans.

The third dimension of this trinity is SOCIAL  – not social distancing but social impact. It is a more recent addition to the trinity and is probably the most lethal of them  all. The fallout of the impact of the health and economic  consequences, will have and is already having a devastating social impact. In the immediate – stressed relationships, uncertain future, broken marriages, devastated plans, destroyed  or stalled careers, and most importantly, job losses and income losses causing collateral impact on the social fibre of humanity. As this plays out, the very core of our societies is being completely redefined and we will all have no choice but to accept and finally  embrace.

Each of these has a terrible potential  and together a portent of a global consequence with unknown implications.

For the financial sector, another word that’s slowly crept into our lives and is having short term and potential long term impact is MORATORIUM. In the end of March, 2020, the RBI announced a three month  moratorium from servicing loans, to alleviate the immediate impact of lost jobs, uncertain cash flows and a general “balm” to the kind of panic that set in due to financial issues.

Subsequently, more recently there was a SECOND MORATORIUM announced – for three more months. The RBI in its wisdom made the announcement with low clarity on the actual operational aspects with some level of standardisation, resulting in all lenders interpreting the advisory to their strategic and operational convenience.

 The whole idea of the moratoriums, I would believe, was to ease the stress of the borrower – and I am also sure that has been the driving force behind the decisions on implementing the moratorium. And now, with the second moratorium, I believe the confusion could increase, as some lenders are learning from moratorium 1 experience, and making changes. Please remember, the average borrower knows little about moratorium and impact etc – and whilst most lenders have made different levels of effort to educate their borrowers, there is still a fuzzy awareness of the consequences on the borrower, basis his decision to avail the moratorium or not.

The moratoriums will have short term consequences and  long term impacts. We hope to address many of them in a series of initiatives, you – the reader will hear about in the next few days/weeks.

We are giving a thought leadership to this with complete independence. We have researched on  available material  on the moratorium and also spoken to a wide range of different lenders – banks, housing finance companies, and related stakeholders.

Until my next blog – coming soon – stay safe and stay well.

• Know and understand:

Check with the credit institution to know the reason for the rejection-read it and understand the reason!

As per RBI, “A bank cannot reject your loan application without furnishing valid reason(s) for the same.”

Does the reason talk about a low credit score? Does it point to poor payment history? Are the reasons reflecting in your credit history? It’s time to check your credit report to know the reason or if there is any other reason.

• Re-check your credit score:

A low credit score is one of the reasons for which the credit institution may have rejected the loan application. There are different credit scoring models that different credit institutions may follow – it may be its in-house scoring model or a credit score obtained from a credit bureau. It is advisable to check your credit score with one of the credit bureaus in the country to know how credit healthy you are.

• Do an error check:

 A credit report contains your demographic details, credit account details and payment history. Do a check if there are error on your credit report related to your personal details or account details. If there is some information which you think is not related to you then it needs to be rectified and updated by the respective credit institution and thus at the credit bureaus.

• Seek help:

Do you need help to understand your credit report? Do you find it difficult to read your credit report? Credit counsellors guide you in understanding and reviewing your credit report .They also suggest ways to improve your credit score. Seek the guidance of these experts.

Rejections are always a learning experience. Stop worrying instead, be little more alert, be a little more prudent, be a little more assertive and a little more proactive-be disciplined and a window will open again!

Economic disaster, financial sector hugely impacted and real estate in big trouble. Doomsday advocates and experts have predicted gloomy and dark days ahead. Coupled with the consequent social issues which are a direct fall out of the economic crisis, things don’t look very encouraging – at least in the foreseeable future.

The sun must rise after every darkness and this too shall pass.

Around the end of March 2020, the Reserve Bank of India announced a moratorium of 3 months for paying your loan instalments – and within moments,  the media took over – and before you could spell moratorium some sections of the media had branded it as a waiver. Then there were several experts who opined on what could or should be done and also started advising the common man on the best course of action.

Confusion spread faster than the virus itself with every lender (banks, NBFC’s, HFC’s) all rushing to interpret the RBI announcement. In the meantime the March EMI’s were being paid or collected thru an efficient system of direct debit. So in many cases, automatically the 3 month moratorium was reduced to a 2 month moratorium.

I had said then to a private group of colleagues that this was an operational disaster which would, like the virus threaten to peak in June and the September quarter

Here are some illustrative reasons why I believe that:

1. Every lender has chosen to interpret the RBI guidelines to its convenience.
2. Consumers are getting confusing operating instructions
3. Some lenders are offering Opt in and some are asking for an Opt out
4. Some lenders are refunding the march EMI, some are taking it in
5. NBFC’s and HFC’s are getting hit on one side of their balance sheet – customers opting for moratorium,  but they not getting moratorium on their repayments to their lenders (at the time of writing this)
6. No standard policy and process prescribed or suggested to implement this moratorium
7. Consumers not understanding that if they have the cash flows and income keeps flowing in – they should pay their EMI and NOT opt for a moratorium.
8. IT systems of several lenders not geared up to manage this one time change and incorporate into their LMS

I think the one single piece of advice I would give to consumers is

“IF YOU HAVE THE CASH FLOWS – PAY YOUR INSTALMENTS AND DO NOT TAKE THE MORATORIUM”

Having said that, we are now into early May so that advice may be purely theoretical – the deed is probably already done.

There are now discussions in various forums about extending the moratorium by another 3 months. Whilst there may be a case for that from the lockdown and related and consequent perspective here are some suggestions, in case another 3 months moratorium is announced

1. Issue standard operating procedures for opt in vs opt out, for adjustment of EMIs received, for treatment of the moratorium EMI’s , treatment of classification and / or one time restructuring and a host of other areas basis the lessons from the first moratorium
2. IBA and lenders to educate the borrower on the benefits or otherwise of opting for a moratorium
3. Clarity on if there is an automatic extension or does the customer has to go thru the process again.
4. Clarity on delayed payment interest for customers who opt for moratorium.
5. Ensure each lender has systems that can handle the operating process adopted.
6. Processes followed are customer friendly.
7. NBFCs and HFC’s are given the same relief that they are required to offer their borrowers – or else we will see several of them just severely stressed.
8. If a consumer opts for M1 can he opt out of M2 and visa versa

I am sure there will be several micro issues …hopefully the lessons of moratorium1 are well learnt to make moratorium 2 an easy experience for the already troubled individual.

Locked down, social distancing, COVID -19, isolation, virus, corona, ventilator, testing, infection …. When can we hear good news. Sooner than later although there is a lot of uncertainty.

Stay safe, stay at home, take care and stay well.

In ophthalmic terms,  20/20 means clarity or sharpness of vision. Ironically, 2020 has started with anything but that. Anywhere you look there is uncertainty, concern and a looming feeling of upcoming serious problems..

• The US-China trade war,
• The most recent eye to eye of USA and Iraq,
• The increasing compromised values, principles and ethics in politics,
• The natural disaster in Australia

 — all point to a not so stable planet this year and …its not been 10 days into the year.

In the financial sector, 2019 saw the catastrophic consequences of two otherwise well reputed companies

• IL&FS and DHFL – failing for different reasons.
• The PMC Bank crisis then was the proverbial last straw – I hope.

No one thought that these three collapses will have the contagion impact on the sector as it so turns out to be – and the story is still work in progress. Enough has been written about these two organisations – what matters is for all of us to learn some underlying lessons and far reaching impacts as a consequence. So:

1. The banks and mutual funds have lost confidence in the NBFCs and HFCs and generally refuse to lend or roll over earlier loans .
2. Credit expansion has slowed down impacting real estate, the auto industry and others too.
3. Consumer confidence is shaken and people are more careful in spending which in turn impacts credit growth and manufacturing.
4. The real estate sector has huge stressed assets to deal with and further unsold property and incomplete property is an upward rising graph.
5. Individual depositors have struggled to recover deposits they placed with these Instituions – deposits probably placed thru incentivised brokers with conflict of interest.
6. Shareholder value has eroded – in these companies.

Then we have political issues causing agitation and violence, an economic slowdown, rising oil prices and most importantly a feeling of gloom and “worse to come” – which may not be untrue.

As a collective country, whilst we cannot do much at the global level, nationally, we need to,  together break this downward spiralling sentiment. As various positives are initiated, like

• Sector specific initiatives from the Government (the real asset stressed fund),
• A response by the real estate industry,
• The banks regaining confidence in good quality borrowers in the sector,
• Regulatory responses to try  and ensure no repeats from the lessons learnt and
• Quick resolution of the current issues with any institution that finds itself distressed will actually help in making 2020 take the first steps to a fresh start.

Specific initiatives will happen, but a nationwide will and determination is required with several stakeholders “biting the bullet”.

It’s also the year of the cricket T20 World Cup – and Blue is the colour to adorn the cup !!

In my mind I am thinking – wow, what did I help build! An organization – a concept that has replaced the proverbial hockey stick – the not so mythical recovery magic wand of days gone by.

On a more serious note with some gentle prodding and not so subtle questioning, I discovered the following amazing facts:

• She had 5 credit cards with limits ranging from Rs 15,000 to Rs 30,000 in all aggregating to a limit of Rs 1,00,000 plus
• She had applied and got approved for these cards in the days of “indiscriminate gathering of credit card accounts” by lenders.
• She was using them rather irresponsibly to pay for things she intuitively wanted, not thinking how she would pay back.
• She was paying the “minimum amount due”, feeling smug about the fact she was never late on that minimum payment.
• She had now realized the very high cost (upto 30% plus) of not paying the rest of the outstanding on time.
• The dues had ballooned to a huge amount, due to the interest rate payable on the outstanding dues.
• The aggregate outstanding was an amount she would not be able to service.

…. And hence the calls from the recovery agents!!!

Over the next few months we worked on a specific plan and weaned her away from this huge debt trap, with a little bit of help form friends and family, some counseling and a large dose of imposed discipline. The fact that counseling individuals in precisely this aspect is what we do, as a credit counseling company did help!!

She was relieved (the calls stopped), her credit history improved and she started “hating” plastic with vengeance, having seen what it did to her financial situation and peace of mind!! And her efficiency at work improved too!!!

For all of us, the lessons to always remember from this experience:

• Do not apply for or acquire credit cards beyond what you need.
• Cancel or close credit cards you do not use
• Do not swipe cards beyond your capacity to pay all dues on the date the payments are due
• Remember you have to pay – swiping means delaying that – not wishing it away!
• This delayed payment comes at a huge financial cost – interest rates on outstanding credit card dues ranges between 30-38 % p.a.
• Paying minimum balance is no answer – in fact it compounds the problem  – lulls you into a false sense of complacency and belief that you are in control of your card bills. Don’t forget the huge interest on the unpaid amount.
• Therefore always pay on or before due date.
• Do not put yourself in a position where the payment due hangs on you like a sword.
• Use the credit card as a convenience – not as a tool to leverage your current income to borrow multiples of that income.
• Before you swipe that card ask yourself – do I need to and can I pay this amount off when my next salary comes into my bank account?  If the answer to both questions is YES, then go ahead and swipe away!!

Follow these 10 commandments and the evil plastic will not dominate your life!

To finish on a lighter note – a bank called its credit card customer to say “your credit card payment is outstanding” and the customer grinned from ear to ear and said “thank you for the compliment ”. You don’t want to be in that position!!

As per two recent notification by the Reserve Bank of India, all banks and other lenders need to take into account ‘credit information reports (CIRs)’ from one or more agencies in all lending decisions and account opening, and also a loan applications should not be rejected just because the applicant has no credit history. So let’s get going and look at 3 ways which will help you build your credit history –

• Apply for a secured credit card:

A secured credit card is a credit card that is backed by a savings account or by a deposit used as collateral on the credit available with the card . And gradually as you keep paying your outstanding dues on time your good credit behaviour will be reported to the credit bureaus. And this good credit behaviour will help build your credit history.

• As an authorized user:  

Become an authorized user of a family member/spouse on one of his or her oldest credit card accounts. But do make sure this ‘someone’ repays  outstanding dues on time. After you have become an authorized user, then you have access to some form of credit. Once you do, make sure you do a 100% payment of all your dues on time and don’t spend beyond what you can repay.

• Check your credit score:

Do check your credit report for your latest score. For an individual with no credit history or who does not have enough credit history, the score generated is ‘NA’ or ‘NH’(CIBIL score) . Typically, conservative lenders could view ‘NH’ negatively as per their credit policies of not lending to an individual who has no track record. Whilst an aggressive lender with a higher risk appetite, could approve your credit application. Hence look for lenders where you may have a better chance.

Hope you build your good credit history with time and continue doing so. Ensure that you do not apply randomly for credit facilities as this indicates a credit hungry behaviour. And a high number of enquiries is viewed negatively by lending institutions.