There's a lot of ground to be covered when it comes to planning and managing credit, feels Satish Mehta, founder and director, Credexpert. In an interview with RN Bhaskar and Aswathy Varughese, Mehta points to the soft patches in the credit sector and how best to tackle them.
Are stakeholders in the credit space functioning effectively?
Currently, we have the Reserve bank of India (RBI) as the regulator for all credits. There are banks, non-banking financial institutions (NBFCs), housing finance companies (HFCs) and other lenders. There are four credit bureaus as well. But the one stakeholder who was never taken care of is individuals like you and me who are the most affected. People are still ignorant about a credit bureau and credit score until it catches them off-guard. More importantly, we should guide them how not to get into a mess. It's like a doctor. We all go to a doctor only when we have a problem, but nobody consults a doctor to minimise the risk.
Tell us about your initiative on spreading awareness about credit management.
Credexpert is a private company working in the credit space. Also, bureaus have become a big thing. There are more bureaus coming up in Africa. We also do consultancy for them to set up bureaus there.
We want to talk about credit and spread awareness on the same. There would be 1,000 guys advising you how to manage your wealth, but who advises you on how to manage your credit?... Most people don't even know they are in a mess. They find it out only when they get rejected while getting credit. The question of education crops up here where I believe nothing much has been done. There is a serious need to educate people on how to borrow, and borrow within your needs. People need this awareness in a more structured fashion.
What is the basic problem with banks and other financial institutions in utilising credit bureaus? Do you think a structural change is necessary?
Banks today, especially public sector lenders and old private sector ones, do not use credit bureaus as effectively as they should. There is a drive for topline. And in the process, most of them forget to use this as an effective option in managing the credit side. Banks just check the credit history and disburse loans accordingly. There is a whole lot of other stuff banks can do with the bureau data. So, we consult these banks and housing finance companies as to how to use bureaus better.
Where is retail credit heading?
Honestly, the way retail credit is panning out now, we are heading for a disaster at some stage or the other. The disaster will be at two levels - one, the bank will feel the pain, meaning banks will have bad loans, going forward, and the larger issue is the individuals are going to get affected and fall in huge debt traps. We can see banks going through cycles of credit. The bigger problem is everybody is getting credit cards as if they are buying channa of the street. These days, nobody uses credit cards with a sense of discreetness. The interest rate is 40%. Why does anyone using 4-5 credit cards roll over money?