The RBI’s COVID -19 Regulator Package initially imposed the moratorium of the payments for a period of three months which was later extended, and the lending institutions were suggested not to charge the fees on prepayment or pre closure of these loans facilities.
Even though the personal loan interest rate is such that the borrowers would not have to stretch themselves thin as it is mostly around 10% per annum on average, the rate is much lower than the credit cards that are extended at a rate of around 40% per annum, making it more feasible and approachable especially during a time when managing funds is a matter of concern.
With limited Personal Loan Eligibility requirement, minimal documentation and option of borrowing digitally, the ease of doing transactions has come to the forefront, making the loan facilities approachable.
What about the ones who have taken a loan and are not able to manage it now?
The earning capacity and the purchasing power have reduced significantly during this pandemic. The Equated Monthly Installments (EMI) which was supposed to lighten the burden has now become a weight on the shoulders of the borrowers.
Acknowledging the trouble the borrowers have to face while meeting these monthly obligations, the Reserve Bank of India (RBI) has advised in a circular issued in August 2020 that they can draw a resolution plan for those who might be on the verge of making a default.
Here are some highlights of the circular that came to the rescue of the borrowers and lenders:
In March 2020, the central bank allowed the borrowers to opt-in for the moratorium and deferred the payments for three months. It aimed at reducing the debt servicing burden of the borrowers.
The lenders like PNB Personal Loan were allowed to modify and make the concerned changes in income recognition.
As the pandemic intensified and tightened its grip, the moratorium was extended up to August 2020 but only for specific lenders.
The accumulated interest on the loan can be converted in the Funded Interest Term Loan (FITL) which can be repaid by 21st March 2021.
The credit terms can be adjusted based on the difficulty faced by the lenders and the borrowers.
The resolution plans have to be set in place by the financial organisations (banks and non-banking financial companies) within 180 days from the end of the review period of 30 days.
The accounts under review as on 31st March 2020 and were in default for not more than 30 days as on the mentioned date will be eligible for restructuring.
The points discussed above are a glimpse of the bigger picture that the government is looking at. Maintaining liquidity has become a significant concern, and the central bank has been working around the clock to prevent the situations from going out of hands. These packages, and especially the resolution plans, have become the saviour for many.
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