People shy away from loans as due to uncertain job market

29 October 2013 - Which Way To Pay

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Job insecurity makes people shy away from loans

People in India are shying away from taking bank loans out due to the economic climate and uncertainty surrounding jobs in India. A recent survey has revealed that "In the wake of slowdown, while industrial growth and services are getting impacted, job uncertainty among the young spenders is working as a big dampener.”

Conservative approach is adopted when it comes to loans and borrowing

Individual customers are taking a conservative approach to borrowing when it comes to taking loans from banks against fixed deposits, shares, bonds and even credit card spending. Loans against fixed deposits have declined by 1.6% in the currency fiscal as against growth of 20% between August 2012 and August 2013.

Cautious approach adopted by banks and borrowers

The uncertainty in the job and share market is the reason cited for the cautious approach being adopted by borrowers and banks. The industry body Assocham said "They (banks) perceive as risk great volatility in share prices, particularly if the share price of the mortgaged security has seen a sharp decline. The issue of Mark-to-Market risks act as hindrance.”

Individuals shying away from borrowing

Banks that have been hit by an increase in their non-performing assets are less willing to lend to big companies which are facing liquidity problems. “Firmness in interest rates is also one of the main reasons for the trend, since the deposit rates have been recently revised upward in the wake of tight liquidity position. Uncertainty resulting from economic slowdown and discouraging job scenario are also responsible for the individuals shying away from borrowing against their advances and deposits,” the chamber said in a statement.

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