Behind the sugar-coated promise of “financial inclusion,” lurks a ticking time bomb. The RBI’s new rule—that first-time borrowers cannot be denied loans for lack of CIBIL score—sounds noble. But let’s face it: this could be a recipe for financial disaster.
CIBIL scores exist for a reason. They are not just numbers; they are risk markers. By removing this filter, banks are being forced to lend to unknown entities with zero track record. Who carries the risk? Not the politicians making promises. It’s the taxpayers, it’s the depositors, it’s YOU.
India has already suffered from waves of NPAs (Non-Performing Assets) thanks to reckless lending in the past. Now, by making “income” and “repayment capacity” the only measures, are we opening the door for mass defaults disguised as inclusion?
This is populism disguised as reform. Sure, the headlines will scream “Financial Democracy,” but wait a few years—when banks struggle with bad loans, and the economy bleeds, who will answer?
Sometimes, breaking walls doesn’t set people free—it just floods the room. And Bharat may be about to drown in a wave of bad credit.
The core problem isn't the goal of inclusion, but the reckless dismantling of risk assessment without erecting a more sophisticated framework in its place.
Here is a more detailed analysis:
1. The Substitute Metric is Flawed: The RBI mandates that banks must now underwrite these loans based on "alternative data" like cash flow, savings patterns, and employment history. However, indian public sector banks, who will bear the brunt of this policy, are notoriously poor at the nuanced, analytical task of cash-flow-based lending. Their strength has traditionally been in collateral-based lending (like home loans) or following a simple credit score. Forcing them to use complex, alternative metrics without the proper training, technology, and risk models is a direct invitation to mispriced risk and poor decision-making.
2. It Creates a Perverse Incentive Structure: This rule effectively penalizes responsible financial behavior. A young professional who has diligently used and repaid a credit card will have a score and will be subjected to stricter scrutiny. Meanwhile, an individual with no financial history at all is guaranteed consideration. This absurdity discourages people from building a credit history through smaller, safer products first.
3. The "First-Time Borrower" Category is a Mismatch: This policy treats a young salaried employee and a borrower in an unorganized sector venture as the same—both are "first-time borrowers." Their risk profiles are worlds apart. A blanket rule fails to distinguish between a low-risk, documentable income earner and a high-risk, income-volatile borrower. This lack of granularity ensures that banks will make costly errors, either denying good candidates or approving bad ones.
4. Who Really Bears the Cost? When these inevitably higher defaults occur, banks have two options, both bad for inclusion:
* Increase Rates for Everyone: To cover the losses from the riskier portfolio, banks will be forced to raise interest rates across the board, punishing every existing and future responsible borrower.
* Seek a Bail-In: The government, fearing a banking crisis, might orchestrate a bail-in using depositors' money or, more likely, use taxpayer funds for yet another recapitalization of public sector banks. The bill for this "inclusion" will be paid by the very public it purported to help.
click and follow Indiaherald WhatsApp channel