The policy announcement by the Reserve Bank of India (RBI) usually has an indirect impact on individual households when the rates go up or down. The household depositor and borrower get higher or lower rates eventually depending on the direction of the rate movement. But the covid pandemic has induced RBI to directly address concerns of distressed households with a slew of measures starting March 2020.
One, forbearance on personal loans. If you have an equated monthly instalment or EMI to pay and you either lost your job or had a business loss due to the lockdown, RBI has announced a relief plan for you. If you have paid all your EMIs till 31 March and are still classified as ‘standard’ and not in ‘default’, you are eligible for this restructuring.
Different kinds of loans are eligible for this restructuring, including home, vehicle, gadget, personal, credit card, education and home improvement. The agreement between the lender and borrower must be made before 31 December. The relief you get includes an increase in the tenure of the loan for up to two years, payments can get rescheduled, a further moratorium to the one already in existence.
The exact rules of the game will probably be up to each lender. At this point, it seems that the expert committee headed by K.V. Kamath will be looking at the non-personal loan rules of the game. This will get clear once the committee is constituted.
What individual borrowers won’t get is a free pass of not paying back the loan. It is also likely that the lender will impose costs to work this out and get ready to claw back the accumulated interest at the end of the moratorium period. But for a borrower in distress, a little forbearance gives time to get back on his feet.
The statement specifically prohibits bank staff from taking advantage of this loan restructuring—probably the memories of demonetization when banking staff showed what they were really made of and managed to turn black into white at great benefit to themselves.
Two, when you take your gold for a loan to a gold lender, today you get 75% of the value of the gold as loan. If your gold is worth ₹1 lakh, you bring home ₹75,000 in cash. RBI has hiked this to 90%. You will get ₹90,000 on a gold value of ₹1 lakh till 31 March 2021.
With gold prices up by more than 30% in the past few months, this means a big jump in the loan value the household can get.
It is a big boost for households short of cash—typically of those who lost their jobs or small businesses whose enterprises are shut. But households should be cautious to use this facility—gold prices are volatile and a dip in value should not cause distress.
RBI has moved consistently and quickly since the start of the pandemic to calm markets, to provide liquidity and, now, these steps should go some distance in giving relief to the distressed liquidity-starved household.
Monika Halan is consulting editor at Mint and writes on household finance, policy and regulation.
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