When I was growing up in India, I remember the norm to be - if you don't have the cash to buy it - do without it. Only a very few folk were comfortable taking on home/car or any loans for that matter - personal loans were unheard of. In fact, when I first applied for a credit card back in 1996, Citibank rejected my application thinking I'd run away to the US with their money (being a software "professional" and all)
I'd say we've come a long way, haven't we - when everyone in India knows what EMI stands for (10 years ago I would have thought it had something to do with Electrical Maintenance) and credit card companies now run after you to open up an account - and not the other way around.
Car loans, personal loans, home loans - you name it - the Indian consumer has relatively easy access to all of them. People are buying bigger cars, bigger houses and the younger generation doesnt believe in wearing any clothes other than the ones that have GAP, Adidas, Aeropostale, Nike and the likes printed on them - well they cost a lot of money too. And the less said about cell-phones, the better. Heck, even the paanwala dude at the local crossing flips out his high end Nokia to say hi to his buddy across the street.
All this sound familiar? Big house, big car, shopping at the Mall, eating out, carrying the latest gizmo's - sounds like the average American consumer - doesnt it?
Interest rates have been rising in India for years now and it is hurting the folks that have bought too much house - they are now seeing their EMIs skyrocket. Were banks diligent enough to check the financial stability of their loan applicants or did they dish out loans to any and everyone (read sub-prime)?
See some similarity again - sound like the US?
What if in the coming months/years, the number of defaults spike (despite the banks resolving to sending goons to collect payments)? Is the booming Real estate industry at risk (like it is in the US)? I believe the next couple of years are key for the real estate markets in India. IMO there is too much speculation in the Indian RE market with people buying multiple homes for investment (like the "condo flipping" that went on in Florida not so long ago).
So, the question is - is India headed for a credit crunch as well? Well - my crystal ball is a little foggy, only time will tell........for now, lets celebrate.......the Sensex broke the 18,000 barrier earlier today :-)
I should probably keep my thoughts on an impending correction for later maybe.....
Tuesday, October 9, 2007
The changing face of credit in India
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2 comments:
The baby (sensex) is ripe to be picked. IT has driven it thru the roof. It will bring it down (not quite to earth though). The days of 45 rupees to a dollar is gone (leaving aside some arm twisting from the Premj1's and Nilekani's). Welcome to the new world of 10-15% YOY growth.
Hey Abir,
Looks like the armtwisting isnt working (at least not yet). I've been hoping that it would - but looks like the RBI "believes" in letting the free market take care of things. Also, maybe we are looking in the wrong place - its not the rupee or the RBI that is the problem - its the dollar - maybe dubya's arm needs to be twisted - what with the billions in trade and fiscal deficit and the fed cutting rates - where else will the dollar go? Not up for sure.
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