BY: Precious Kashmir Desk
Srinagar: With both public and private sector banks not giving loans after the outbreak of COVID-19 pandemic has led to the surfacing of private finance companies offering loans at higher interest rates.
However, recent incidents of customers being driven to suicide after being unable to repay loans from financial technology (fintech) companies have raised concerns about their operations.
Experts are asking why are people, including small enterprises, seeking these quick but high-interest loans that can be availed of without any verification instead of seeking bank loans at more affordable rates?
Describing Fintech or app loans as ‘paperless banking’, senior bankers claim that their activities are in contravention of the Negotiable Instruments Act, 1881, which requires that loans cannot be given without verification. Fintech companies, some of which are being probed for alleged fraudulent practices, have been giving out loans without any collateral/identity verification, unlike banks, which go through due diligence before offering loans. So far, the RBI has not laid guidelines or ensured supervision of fintech players.
Despite criticism of app loans, experts and bankers agree that fintech companies are here to stay as they serve a fast-growing market need. Most are, however, reluctant to state that these sources of easy credit are bridging the gaps in services not being fulfilled by banks, particularly when people are still trying to cope with job losses and wage cuts. Government efforts to ease the burden of EMIs and loan repayments though a moratorium on repayment for a few months have not been enough for most borrowers too.
Thomas Franco, general secretary, All India Bank Officers Confederation, feels that if the banking system had risen to the challenges thrown up by the pandemic and provided adequate credit, people would not have used “these loan apps which are using dubious methods for recovery and also charge huge interest and service charges”. He adds, “Today, small credit for the common man is not available from the regular banking system, including public sector banks.”
Franco, however, concedes that given the high cost of giving small loans in view of inadequate manpower, banks generally favour giving larger loans to fewer entities.
The government push towards merger of banks to create large banking entities like SBI, which has 18,000 branches, along with inadequate recruitment after lakhs of employees availed of voluntary retirement scheme (VRS) offers, have left banks ill-equipped to meet the challenges of newer forms of money transactions. Linking of Aadhar and PAN with bank accounts has made it easy for the loan apps by Fintechs to access customers, says Franco.
S. Nagarajan, general secretary, All India Bank Officers’ Association, also admits that the banking system is inadequate to the meet the challenges due to the pandemic, not because of lack of intention but due to Covid protocols, in addition to problems created by the merger of banks. These mergers, he says, has “landed banks in a sorry mess” due to the erosion of one-to-one relations or focused customer services some banks took pride in. The added problem of incomplete technical integration of merged banks has led to customers not getting services like quick approval of loans they had come to expect, with bank officials being aware of their credit worthiness and track record.
Experts and bankers say Fintech firms serve a fast-growing market need that banks are unable to meet. For pandemic-hit companies, app-based loans were an easy way out of the crisis.
“During Covid lockdown, in the name of stimulation of the economy, government made many announcements without consultations with banks, which had to carry out their tasks without adequate manpower, movement restrictions and other precautions that prevented bankers from attending to their regular work, particularly if they were not able to work from their assigned branches,” says Nagarajan.
Strongly opposed to the merger of banks to create mega entities, AIBOA has been upset over the closure of around 7,500 branches after mergers, mostly in rural areas.