NEWS & ADVICE : CREDIT CARDS
Borrowers opting less for travel loans in slowdown
By Ankit Sharma
Apr 29, 2009
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Although the summer season for an outbound travel has set in yet banks do not see an increased demand for travel loans. The banks attribute the lack of demand to the economic slowdown and high travel loan rates.

Normally the summer season that includes the period between April and July witness heavy outbound traffic and travel loans are taken by people for outbound travel, especially to destinations like Europe, US, Australia and New Zealand among others.

Head of relationships and supplier management at Cox & Kings, Karan Anand says, "The concept of travel loans is still at a nascent stage. But it was beginning to catch up. However, we don't expect to see the same kind of growth we saw last year."

Last year around 10 million Indians traveled abroad and only 5- 7% of the total travelers opted for a travel loan.

Meanwhile travel firms say that travel loans which are combined in the personal loan portfolio have not been the main area of concern for the banks. Although there is adequate liquidity in the system yet the lenders are hesitant in extending funds due to the rising number of defaults and further the high interest rates charged by the banks is holding people from borrowing.

In addition the job cuts in the recent past have barred borrowers from opting expensive holidays that would come at a high interest charge.

However the bankers do not have a separate data for travel loans as they are clubbed with personal loans. "We don't offer travel loans. Anyone who applies for a personal loan can use it for whatever purpose he wants to. We don't ask them any questions," said a banker at a foreign bank.

He added that, "All we look at is the person's credentials, history, his repaying capacity."

But as per a private lender, banks would be reluctant in offering personal loan because they are fall under the unsecured category of loans and carry a high risk of default. "When somebody is going through financial difficulties, he or she is not likely to default on the housing loan. Most likely they are going to default on their personal loans first, then the car loan and only then they would think of defaulting on the housing loan. That is why personal loans are considered risky by banks," said the banker.

The travel loans that come under personal loan segment also seem to be a victim of high default rate in the recent past.

 


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