India implements new guideline to curb defaults on personal loans

Question: My brother who is in India has taken personal loans. He has told me that multiple personal loans can be taken from the same bank as well as from other banks. However, I am worried that he may default if he borrows beyond his limits. Do the regulations in India permit the taking of multiple personal loans?

Answer: In order to curb the possibility of defaults by borrowers who overstretch themselves, the Reserve Bank of India has issued guidelines which require banks to update credit bureau records within 15 days. This new guideline, which is effective from January 1, 2025, will enable banks to make better risk assessments of borrowers. It will also enable banks to capture defaults, especially where multiple loans have been secured. Though there is no limit on the number of personal loans which an individual can take, it will help bankers to monitor the behaviour of the borrower and have a more current view of his financial status. Frequent data updates will also prevent practices like evergreening, where borrowers use new loans to pay off old outstanding amounts. According to the RBI, this new regulation will ensure that defaults are avoided and banks will gain quicker and more reliable data that improves decision making and fosters a healthier and robust lending ecosystem.

Question: Productivity of the Indian manufacturing sector does not compare well with that prevailing in other Asian countries. Is anything being done by Indian industry to accelerate productivity?

Answer: In the past, resistance to change has been a major obstacle, irrespective of size or sector. Other challenges faced by Indian industry included a lack of skilled workforce and not choosing the right technology. India’s manufacturing sector is now going through a transformation which is being brought about by embracing technology as a catalyst for future profitability and global competitiveness. Adoption of automation, artificial intelligence, machine learning, Internet of things, and robotics has now become standard practice in the top manufacturing companies in India. By adopting these technological advancements, Indian industry will be able to gain a competitive edge globally. In the next two years it is expected that certain sectors of Indian industry will allocate around 15 per cent of their budgets towards technology infusion and innovation. While high capital industries like semi-conductors and aerospace are leading the way in adopting advanced technologies, traditional sectors like textiles and food processing are taking a longer time to absorb technological advances. Another challenge which is being addressed by Indian industry is to identify and sustain supply chains to achieve a higher rate of growth. More and more companies are going in for partnerships and collaborations and creating training academies for upskilling technical personnel who are encouraged to adopt smart manufacturing practices.

HP Ranina is a practising lawyer, specialising in corporate and fiscal laws of India.