The private sector banks have served India as major commercial banks since 1947. But, in 1969 there took place a reform in which it nationalised all private commercial banks intending to meet the social and economic needs of the population keeping weaker section at a higher priority. These public sector banks operated for the next two decades, fulfilling most of its goals with no considerable intervention of the private banks.
The Indian public sector banks undoubtedly have had the maximum shares and most deposits in various banks all over the country. However, most of these banks have declining performance over the years taking into account the share of total deposit and loans. Private banks in India have always outperformed with the shares in the total deposits securing a generous portion of the banking system.
Deposits growth in India shows the yearly changes in commercial bank deposits. The Private banks’ share in this total deposit has increased right from 4% in the 1990s to 18% in 2011 and 27.5% as of 31st March 2019. The all-time highest share in total deposit was 29.30% recorded in January 2008. The other important factor determining a banking enterprise’s growth is the total amount of loans it has given up. The share of loans given out by private banks in India has leapt from 17.8% recorded in 2011 to 33.6% as of 31st March 2019. This change has taken over mainly in the last four years in which the private banks have expanded to a great extent by putting up branches in the rural areas.
There is a certain difference in taking a loan from public and private banks in India. The banking process, documents submissions, efficiency and interest rate fluctuations are some principal reasons that make them so. Private banks have always shown superiority in the ease of paperwork, management, and speedy processing. However, there are often fluctuations in the interest rate for the loans depending on the RBI’s REPO rate. The interest rates immediately increase as the REPO rate increases, but the vice versa is seldom true. Few other factors that affect your interest rates are your income, employment history, past behaviour as a borrower, and the most trending one is the credit score.
Credit scores are the points you get for every payment you make to repay the previous loans. It helps banks to analyse your previous behaviour and payment pattern to know your credibility. We consider these scores, which range from 300 to 900, as good if fallen in between 600 to 750, and the lower interest rate is only one of the many perks that come with having an excellent credit score of above 750point. The private banks in India give loans at low-interest rates only to the ones with a higher credit score.
People often misunderstand that personal credit score has nothing to do with the business loans, as they are two unique aspects, and their calculation is different altogether. However, they seldom have known that personal credit affects the business loan in many cases. Thus, there is a need to comprehend when and where we require a good credit score to reflect in our interest rates. It had gained a lot of importance in the present times for validating the credibility of the borrower and subsequently, many credit rating organisations have come up with their methods of assigning a credit score.
A business can be put up by a group of people or an individual and operated as a sole proprietorship, partnership, private and public enterprises, so, we cannot generalize the concept of personal credit score affecting these businesses which have unique characteristics and functioning.
With a sole proprietorship, it becomes tough to analyse distinctly the creditworthiness of the owner and the company. Thus, a good personal credit score can play a key role in positively affecting the interest rates for business loans as the owner is solely responsible for his/her company’s well-being. The partnership business, which includes two or more individuals responsible for all the operations associated with the company, has a similar impact on loan interest regarding their credit score.
The public and private limited companies which have a larger scale operation compared to the sole proprietorship and partnership business have their business credit score. The organizations compute these scores base on the past payments made against the previous loans of the company, and the current turnover of the company, irrespective of the individual credit score of the owners. Good personal credit score can always be an added proof of your trustworthiness.
So, it’s good to build up your credit score before applying for a loan if you haven’t yet.
