digital thoughts

India is rapidly becoming a credit society. Just few years ago, Indian banks didn’t lend even 10,000 rupees without proper documentation and collateral. Now, you get the loan for Rs. 5 lakhs just by calling the bank; they deliver the documents and money to your home.

I know people that hold 12 credit cards just from ICICI bank. I know a guy that has 34 credit cards in total. Banks throw the caution in the wind and lend money as if there is no tomorrow.

If this trend continues, there will be lot of troubles ahead for us. Just take a look at what happened in American stock market yesterday. Dow plunged 243 on subprime lender woes.

What is subprime? It’s basically a risk credit. American banks and financial institutions were lending money to poor-credit customers for their mortgages. Banks didn’t care about how much income their customers had and how much money they could afford to borrow. America had real estate boom from 2002 ““ 2005. In the boom period, every bank was so optimistic; they thought that nothing will fail. They invented or redesigned some exotic mortgage/credit products.

Sound familiar? India experiences the similar situation right now. I feel that situation in India is much worse; banks don’t have the mechanism to verify the customers’ identity. Some people apply for many credit cards from the same bank using different addresses.

Every bank in India thinks that it’s okay to lend money to anyone that asks for a loan or credit card.

I won’t be surprised if Indian banks face the similar crisis in the next few years. If you have invested in real estate, banking and housing sectors, you may need to take big losses if you don’t watch the developments in credit sector.