Less than half of consumer loan borrowers have a credit score of 750, according to a report from paisabazaar.com

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Despite the use of credit rating in retail lending, analysts see risks emerging in some segments of the Indian consumer credit market amid a slowing economy.

Less than half of all borrowers who take out a consumer loan have a credit score above 750, according to a report from Paisabazaar.com. Most of the credit bureaus in India rate borrowers in the range of 300 to 900.

Borrowers who were new to credit and therefore had no credit history made up 23% of the pool. Consumers with a credit score between 701 and 750 made up 14% of the sample, while those with a credit score below 700 made up the remaining 15%. “In the past 12 months, 36% of these New to Credit customers got a line of credit,” Paisabazaar said in its report titled “Making India Credit Fit”. The consumer analysis report has been compiled by analyzing the data of clients of the financial market.

In terms of creditworthiness, employee borrowers fare a little better than independent borrowers. Six in 10 salaried borrowers have a credit score above 750, compared to a ratio of five in 10 for the self-employed category.

Credit bureaus coverage in India stood at 56% in 2018, according to the report, citing data from the World Bank. This is much lower than the coverage of credit bureaus in other emerging economies, such as Russia (88%) and Malaysia (86%). The data takes into account the number of individual consumers and businesses listed by credit bureaus as a percentage of a country’s total adult population. In recent years, credit scores have become the primary means of assessing the risk associated with an individual borrower. Bankers often point out that the easy availability of data from credit bureaus is one of the reasons for the increase in unsecured loans as well as other personal loans. Some banks, such as Bank of Baroda (BoB), have already offered a tariff advantage to high-rated customers. In 2017, the lender decided to offer home loans at its one-year loan on funds rate (MCLR) without any spread to clients with a CIBIL score of 760 or more.

Despite the use of credit ratings in retail lending, analysts see risks emerging in some segments of the Indian consumer credit market amid a slowing economy. Jefferies analysts wrote in a recent note: “For vehicle financiers, asset quality remained broadly stable (rather than lower year-over-year), but a sustained slowdown in autos and a deterioration in cash flow for truck operators could lead to an increase in defaults in the future. “

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