Only in India: Individuals are better borrowers than companies

Money is less about numbers and more about behaviour. And somehow, we have got this behaviour right, at least in the recent past.

A Hindustan Times report todaynotes thatwhen it comes to borrowing, Indians are safe. According to CIBIL, the credit rating agency for individuals, about 75 percent borrowers who took loans to buy a house or car are “very safe” borrowers. While most borrowers are below the age of 35, almost 80 percent have a high credit score, making them credit worthy borrowers.

But what about all those screaming headlines about ever increasing non-performing assets (NPAs) of banks? Well, those have little to do with individual borrowers and more to do with corporates. Most individual borrowers stick to their repayment schedule. Remember, paying bills on time means a high credit score.

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In fact, when it comes to paying our credit card dues, we pay outstanding balances on time and do not revolve credit, at least not as much as we used to. In a recent interaction, Jairam Sridharan, president and head (consumer lending and payments), Axis Bank, told Firstpost, “Credit card customers are revolving credit far less today than a few years back. The rates have fallen form around 50 percent in 2005 to 15 percent now.”

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He added that the awareness of credit rating agencies and hence the important of a good credit score is making borrowers pay their bills on time, even within the interest free period.

Decrease in the rate of revolving credit does not mean that we are spending less on card. The total spends on card have increased, but the bills are also getting paid on time. In fact, unlike a few years back when most of us were borrowing the bad type of debt (unsecured like a personal loan), now more are borrowing to fund their house or a car. Financial planners considerhouse as good debt. The HT report too observed this trend. In 2006, 69 percent first-time borrowers took credit for personal loan and credit card spends. Now, 62 percent first-time borrowers take credit to fund a house or car.

Where does this responsible borrowing and repayment behaviour come from? Sridharan tol_d Firstpost_ that before the economic meltdown in 2008, many took credit without much thought. But after 2008 there was an economic slowdown, people started losing jobs and defaulted on their loans. This made them bad borrowers and hence getting loans became difficult. Slowly, this lead to realisation of the importance of a good repayment history, credit score and responsible credit utilisation.

Traditionally, Indians are known to be debt averse. In fact, until a few years back taking debt or karza was looked down up on. Now this is changing for the better.

But, will this continue? Only time can tell. But as of now, unlike an average American who carries an average 11 credit cards in his pocket, we have managed to modify out credit behaviour in the right direction. And, let’s hope it continues to be so.