The personal loan Euphoria and Credit quality

Banks in India have always be touting about their dramatic growth in disbursement and planned growth in future....Having been in the industry for two years...I know a bit about the quality of credit checks done by these guys and the overall quality of the Loans portfolio generated by these droids....

I might say the credit quality is pathetic...there is no financial analysis done and money is thrown at cheap interest rates for every Tom Dick and harry who wants it.....The guy disbursing the loan doesnt even know what an IRR is ...and what credit quality is ........

Historically, their confidence of lending this money stemmed from their ability to hire "Recovery Agents" (ok they are goons)...to recover money from their customers.....They sometimes even followed abusive practices as evident from recent court cases

After recent Judicial interventions( a formal way of writing...the court Kicked ICICI's ass by slashing 50 Lacs Fine for hiring goons) the banks are now finding it tough to maintain their recovery effeciency without the help of the "Recovery Agents". :)

As per a recent announcement

ICICI Bank the country's second-largest bank, has stopped lending to borrowers from the sub-prime segment----The statement by a senior GM in the consumer Loans business reads like this

"We have become conservative. Consumers without any credit history will now find it difficult to get loans. We had written to the Reserve Bank of Indiathat we want to exit the small-ticket personal loans business (loans up to Rs 30,000). We have closed down a little over 100 outlets (used to sell loans to small borrowers)," he said."

So I guess the party time is over (or is it Euphoria)...and banks are going to stick back to fundamental concepts such as Credit Quality and Cash Flow...and Interest Service Coverage while dibursing loans....