New Delhi: Looks like the borrowers from sub-prime segment and low income groups will have tough time getting a small ticket personal loan. After severe backlash by judiciary on unruly incidents by recovery agents involving severe thrashing, and harassment leading to suicides, which had forced ICICI Bank to offer compensation, banks have adopted a cautious approach.

Taking a lesson from the incidents, ICICI Bank the largest private sector lender has stopped giving any loans to borrowers from sub-prime segment. Another big player in the small ticket loan segment, Citigroup is now checking the credentials of borrowers more strictly before lending to them. Citigroup is also contemplating a reduction in its Citifinancial branches.

ICICI Bank has about Rs. 2500 crores outstanding in the small ticket segment. B Madhivanan, senior general manager and head-customer service and phone banking at ICICI Bank, said," The bank has tightened its credit filters and loan underwriting practices following the recent incidents. We have become conservative. Consumers without any credit history will now find it difficult to get loans. We had written to the Reserve Bank of India that we want to exit the small-ticket personal loans business (loans up to Rs 30,000). We have closed down a little over 100 outlets (used to sell loans to small borrowers)."

After the strong reaction by judicial agencies, RBI and general public to the high handedness of recovery agents banks have been forced to rethink their lending strategies. The earlier practice of lending arbitrarily with little thought on the repayment capacities and track records of the customers is most likely to end. Banks are asking for more documents, clear indications of income, bank statements monthly expenditures, past repayment records and are verifying every detail minutely to safeguard their interests.

Banks are also enforcing a mandatory face-to-face interaction with the customer before any loan disbursal. The calculations about disposable income and debt service capabilities are now done more rigorously and banks ensure that the monthly installments do not exceed 70 to 80 per cent of surplus income.