India Needs a Credit Repair Framework—Not Permanent Financial Punishment

India’s financial system has made remarkable progress in expanding credit access. Yet, there is a quiet crisis unfolding beneath the surface—millions of otherwise responsible borrowers remain locked out of formal credit due to temporary financial distress experienced during extraordinary times. The COVID-19 pandemic, followed by economic disruptions, medical emergencies, and employment instability, pushed many individuals into short-term loan defaults. These were not cases of wilful...

min read

India Needs a Credit Repair Framework—Not Permanent Financial Punishment

India’s financial system has made remarkable progress in expanding credit access. Yet, there is a quiet crisis unfolding beneath the surface—millions of otherwise responsible borrowers remain locked out of formal credit due to temporary financial distress experienced during extraordinary times. The COVID-19 pandemic, followed by economic disruptions, medical emergencies, and employment instability, pushed many individuals into short-term loan defaults. These were not cases of wilful negligence, but of systemic shock. However, our credit reporting and scoring mechanisms continue to treat such defaults as permanent red flags, often without scope for contextual review or rehabilitation. Recently, I submitted a proposal to the Reserve Bank of India (RBI) and the Ministry of Finance urging the introduction of a structured Credit Repair and Rehabilitation Framework—one that balances credit discipline with economic realism and human fairness. Why Credit Repair Matters Now India is aiming to become a $5 trillion economy, driven by consumption, entrepreneurship, and MSME growth. Yet, credit exclusion acts as a silent brake on this ambition. When salaried professionals, small entrepreneurs, and self-employed workers are denied access to loans years after a one-time crisis default, we unintentionally push them toward informal lending, higher interest rates, or economic stagnation. A rigid “once-defaulted, always-risky” approach may protect balance sheets in the short term, but it undermines long-term credit expansion and trust in the formal system. Learning from Global Practices Globally, regulators are rethinking this approach. For instance, the People’s Bank of China (PBOC) has recently introduced a regulated credit repair mechanism allowing borrowers with limited, time-bound overdue records from crisis periods to restore creditworthiness. Importantly, this does not weaken credit discipline—it strengthens it by distinguishing temporary hardship from habitual default. India, with its robust digital banking and credit infrastructure, is well-positioned to design an even more nuanced and accountable framework. What a Balanced Framework Could Look Like A well-regulated credit rehabilitation policy could include: • Eligibility limited to crisis-period defaults, officially notified by regulators • Caps on overdue amount and frequency • Mandatory cooling-off periods and improved repayment behaviour • Bank-led review and approval mechanisms • Clear RBI guidelines for credit bureaus on data correction and updating Such a framework would be conditional, transparent, and auditable, ensuring no dilution of systemic risk controls. Economic Inclusion Is Economic Strength Credit systems are not merely risk filters—they are economic enablers. A borrower who recovers, repays consistently, and rebuilds financial discipline should not remain excluded indefinitely due to a past crisis. True financial inclusion is not just about opening accounts or issuing loans—it is about allowing recovery, rebuilding trust, and restoring dignity within the system. The Way Forward This is an opportune moment for RBI and the Finance Ministry to initiate a structured consultation with banks, NBFCs, credit bureaus, economists, and consumer representatives to explore a calibrated credit repair framework tailored for India. Second chances, when governed responsibly, do not weaken economies—they strengthen them. As India charts its next phase of growth, our credit policies must evolve from being purely punitive to progressively rehabilitative, without compromising prudence.

India bears the brunt: Nifty crashes 1,100, Sensex nosedives 3,900 points after US trade shock

Correspondent
Apr 7
2 min read

India woke up to a financial jolt this morning as its equity markets suffered their steepest fall in nearly a year, shaken by the ripple effects of US President Donald Trump’s aggressive new tariff regime. The Sensex plunged over 3,900 points at opening bell, while the Nifty tumbled more than 1,100 points, dragging Indian stocks to a 10-month low.

This sharp decline follows a global equity rout triggered by Trump's protectionist measures, which have sent panic waves across Asia and raised the spectre of a global recession. Investors dumped shares in a massive sell-off, with Indian benchmarks reacting sharply in early trade. The Sensex dropped to 71,425.01 — down 3,939.68 points — while Nifty slipped to 21,743.65, marking a 3.5% slide from the last session.

Adding to the pressure, the Indian rupee depreciated 30 paise to open at 85.74 against the US dollar.

India Among the Hardest Hit

Trump’s latest tariff hike — framed as a push to restore fairness to global trade — has imposed country-specific duties that go as high as 50%. India has been slapped with a 26% tariff, while a 10% baseline duty applies to all nations. This has set alarm bells ringing among Indian exporters and traders already struggling with global demand volatility.

President Trump, unfazed by the financial carnage, likened the move to a bitter but necessary cure. “Sometimes you need the medicine to fix something,” he told reporters earlier today.

Analysts Urge Economic Safeguards

Market experts believe that India's current market turmoil isn't rooted in domestic issues but is rather a consequence of being tightly woven into global investment flows.

“India will face the heat, not due to domestic reasons, but as an interlinked chain in the global portfolio flows,” said Ajay Bagga, a noted market expert. “India will need a fiscal, monetary, and reform package to protect the domestic economy from this global economic winter that is threatening to settle in.”

Sunil Gurjar, SEBI-registered research analyst, warned that the Nifty50 index has breached its first support level and is approaching the next. "A further breakdown could worsen the trend and accelerate the fall," he cautioned.

Asian Markets Bleed

The tremors from Trump's announcement were first felt in Asia, with key markets suffering steep losses. China's stock markets fell over 4% amid retaliatory tariffs of 34% against the US. Hong Kong's Hang Seng nosedived more than 10%, while Japan’s Nikkei index fell 6.5% after plunging 8% earlier in the day. Taiwan saw a near-10% collapse, and Singapore dropped over 8%.

Wall Street Braces for Impact

US markets, though yet to open, appear set for a rough start. Futures contracts on the New York Stock Exchange are sharply down, suggesting heavy losses once trading resumes.

Market sentiment globally has turned bearish, with fears of a looming recession taking hold. Stephen Innes of SPI Asset Management described the scene as “free-fall mode,” noting, “Trump’s team isn’t blinking. The tariffs are being treated as a victory lap, not a bargaining chip.”