Yes, It is True. If you are a Government Employee, your employer that is State Government of Central Government might by damaging your Credit Reputation with the Credit Bureaus. Now you will ask, How is it possible? We are being visited by a number of Government Employees with an irreparable loss to their CIBIL Scores and Credit Reputation by none other than their Government Employers. The number of such instances is very high in respect of:
- Employes of Punjab State Power Corporation Limited (PSPCL)
- State Government Teachers
- University Employees
- Punjab Government Employees
Due to Financial Crisis, the Punjab Government is not able to pay the salaries to its own employees resulting in Bad CIBIL Reports of its employees for no fault of theirs. We are discussing below as to how this happens and how can it be avoided:
- Government Employees are approached by Banks to allow them Personal Loans, Car Loans, Consumer Loans based on their Salary Income and only those Banks offer such loans who are maintaining the Salary Accounts of Government Employees of a particular department.
- EMI of the loans is auto deducted from their Salary when it is credited to their accounts.
- Sometimes the Government Departments are not able to pay the monthly salary to its employees as in case of employees of PSPCL and Various Punjab Government employees.
- Due to nonreceipt of Salary, the EMI of the loans gets defaulted and the Credit Scores of the employees gets reduced with every default whereas such default is not willful.
- Due to the Default in payment of EMI, the Banks start charging penal interest over and above the normal rate of interest adding insult to the injury of the Government Employees when it is none of their faults.
- Lending Bankers also allow Clean Overdraft is the salary accounts of such employees so that they can meet with their living expenses. Banks charge very high rate of interest on such clean overdrafts and these overdrafts further damage the Credit Reputation of the employees.
- Sometime when the salaries are not paid consecutively for a period of more than 3 months, the loan accounts get automatically classified as Non-Performing Assets and the CIBIL Report of the employees gets damaged to such an extent that it becomes irreparable due to the insensitive attitude of the lending Bankers.
- Due to Poor Credit Scores, the employees are denied loans in the future without their fault.
How the Banks can avoid wrong reporting of Defaults:
- In such cases, the banks must have an inbuilt mechanism to postpone recovery of EMI and interest to a future date or they may sanction overdraft limit at the same rate of interest equivalent to 3 to 5 months take-home pay with manual control over the drawing power equal to the actual delay in payment of Salary.
- The Banks may recover EMI from such OD Limit and leave the Balance for the employees to take care of their living expense.
- Government Employers should be penalized for the delay in payment of Salary to its employees as non-payment of salary in time is a mental torture to the employees.
In my opinion, there is no risk to loans granted to Government Employees if a proper mechanism to take care of the delay in payment of salary is put in action.