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Tuesday, October 17, 2017

Credit market

Monday, 09 October 2017 12:10
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India witnessed weakest growth rate since the first quarter of 2014. The recent official GDP data showed that growth rate fell to 5.7 per cent for the March-June 2017 quarter as against 7.9 per cent of the corresponding quarter last fiscal. Contrary to this, consumer spending is recording tremendous growth. Though demonetization and implementation of goods and services tax (GST) slightly disturbed the consumer spending, the consumer market immediately readjusted itself and sales of consumer goods regained the pace. And the credit for this boom in the consumer market and the motor vehicles' market goes to the banks and financial institutions for tailoring specific loan products/offers to fund the desires of consumers. It is obvious that the landscape of consumerism has changed (and is still changing) a lot. Some two decades back, people used to hesitate to buy consumer goods which were not considered a necessity. Today, people lay hand on goods whether these things are actually needed by them or not. So what triggered this consumerism so fast? As stated above, today the loans are sanctioned and approved instantly. With modern technology at the back, banks and financial institutions have been proactively capturing the profile of consumers and targeting them through emails, calls and messages offering pre-approved loan facility. More importantly, a trend is in place where banks chase consumers with their loan schemes to fund their every purchase. These financial institutions and banks have loaded almost every family with a new norm of monthly equated instalments (EMIs) through their consumer loan offerings. Here, this wave of consumer loans has taken the retail market by storm. People are granted on the spot loans at the time of their purchase. So, even if it is beyond their financial capacity, they are tempted to buy anything which is otherwise unimportant for them to possess. Precisely, this easy lending scenario has got almost whole generation into the net of credit market. Mostly, availability of easy loan facility to lay hand on consumer goods and vehicles (two wheelers & cars) of their choice, has (and is) lured the employees who see these easy loans as a financial freedom at their doorstep to spend. Today, we have large section of people who are now accustomed to own consumer goods, cars and two-wheelers not purely on need basis, but they lay hand on them because some easy financial window is offering a lending facility. This indicates an immensely changed spending pattern not based on logic. For example, they frequently replace their consumer goods like television sets, mobile phone sets, refrigerators, washing machines etc. People have even become habitual of changing their cars and two-wheelers like any other ordinary gadget. Here one must keep in mind that entirely banking upon a loan with uncertain future income can result in debt trap. In other words, spending is directly related to affordability. If you face any issue on affordability front, better would be not to satiate your desires with loans. Experts have already expressed their worry over the fast growing consumerism which is mostly luring consumers to meaningless spending - of course, mostly at the back of a consumer loan. The current scenario indicates that the rate of increase in income levels of most of the consumers is not matching their spending. By taking route of loans, they simply push themselves at the edge of a debt trap and economic stress. Sure, taking route of bank loan is not a bad idea if such loan earns you sufficiently more than what it costs to service the loan. And while availing a loan facility whether a consumer loan or a home loan, it requires commitment when it comes to pay regular EMIs. In today's environment, borrowing is the easiest thing to do, but repaying it is a big deal.


  Another failure  GST blunder