Borrowers Faced with Grave Hardship Of Making Repayments Amid Coronavirus Economic Vulnerability

By - Paisafatafat Blog

  • 2020-04-24 12:23:42
  • Finance

The Associated Chambers of Commerce of India, ASSOCHAM, raised concerns on Thursday about the possible inability of personal loan holders to make timely repayments as well as retain their credit scores. The coronavirus pandemic has been a big cause in bringing about this financial vulnerability amongst borrowers.

Some data as released by the RBI reveals these figures as of January 31. The total non-food credit from banking institutions stood at over Rs. 89 lakh crore. This includes about Rs. 25 lakh crore in retail loans, Rs. 23 lakh crore large industry loans, more than Rs. 24 lakh crore loans to the service sector, etc. The figures as of end of February, 2020 stood at Rs. 25.32 lakh crore in outstanding personal loans.

As per ASSOCHAM analysis, this mostly combines vehicle, housing loans, education loans and the credit card segment. These are the biggest areas of concern for financial bodies.

As per further figures revealed at the end of February this year, credit card spends amounted to an outstanding of Rs. 1.11 lakh crore. The housing sub-segment stood at an outstanding of Rs 13.30 lakh crore, vehicle loans at Rs. 2.21 lakh crore and an aggregate of other personal loans stood at an outstanding of Rs 7.17 lakh crore, vehicle and credit card segments forming the major chunk of personal loans outstanding.

Borrowers are faced with a grave challenge to pay their EMIs on time as well as retaining their credit scores.

Relief Measures

The Reserve Bank of India has adopted certain measures to give a breather to borrowers and them cope with these monetary pressures brought upon them by the COVID-19 outbreak. In a letter written to the RBI, Secretary to the Department of Financial Services suggested providing a moratorium of a few months on the payment of EMIs, loan repayments and interests as well as “a relaxation in the classification of bad loans”.

This is a time, as per the letter, when businesses as well as individuals are faced with huge losses in their incomes, slashed pay checks and layoffs, due to the centre imposed lockdown all across the country as a measure to contain the coronavirus spread. Hence there should be some relief measures in place to give a reprieve.

The moratorium will be applied to any term loan instalment that will include retail as well as corporate loans. Relief can be sought on home loans, auto loans, loans against property, project loans etc. Credit card dues and bullet repayments will also be covered along with EMIs.

Congress President Sonia Gandhi also suggested in her letter to the Prime Minister that equated monthly instalments and loan repayments be deferred for a period of six months along with a waiver of all interests charged by banks during this time period.

Refief measures has been extended in other forms by the government as finance minister, Nirmala Sitharaman announced a package of Rs. 1.7 lakh crore for the financially vulnerable sections of society that have been hit by the coronavirus.

Sitharaman has also announced “Rs. 50 lakh medical insurance cover per person healthcare workers, sanitation workers, paramedics, doctors and nurses who are exposing themselves to the virus”.  For organizations with less than one hundred employees with ninety per cent of them drawing less than Rs. 15,000 as monthly package, the government will pay both the employer and the employee contributions of EPF for the next three months.

Although the relief measures in terms of moratoriums etc. sound very good for now, the deferment adds the surplus burden of compounding interests as a direct result of prolonging the tenure. However, the ASSOCHAM advised not to compromise the credit scores of personal loan holders as most of them are young professionals with a long term career ahead of them.


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