EMI payment in lockdown has become a contentious issue between many borrowers and banks or other lenders. While the intention of the RBI to allow banks to offer EMI moratorium on term loans — such as home loan, car loan, personal loans, credit cards — was to provide a short-term liquidity relief to the borrowers, the cost implication of such a moratorium has been estimated to be huge.
Being one of the top lending institutions in the country, Finway has expressed concern regarding the current loan repayment in the country and the mindset of borrowers. The borrowers’ mindset has changed quite significantly with regards to loan repayment as well as investments – especially since the RBI has announced a three-month extension of the moratorium on loans, i.e. till August 31, 2020.
Earlier in March 2020, all commercial banks, including housing finance companies, were allowed to extend a moratorium of 3 months on the monthly installments in respect of all term loans outstanding as on March 1, 2020. Any borrower who avails the RBI’s moratorium scheme will not see any negative impact on his or her credit score.
Later, in May 2020, the RBI EMI moratorium scheme was extended by another 3 months till August 31. For EMI-based term loans, the borrowers can choose to delay the payments of the EMIs for 6 months, falling due between 1st March 2020 and August 31, 2020.
As a leading NBFC in the country, Finway observed that 45% of all its borrowers have applied for a moratorium PAN India; this behaviour is, however, more distinctly noticed in the northern region of the country, in places like Delhi-NCR. Most of the borrowers that have opted for moratorium belong to the middle age group – which means they are either salaried individuals or business entrepreneurs. Depending upon the nature and scale of the lending institution, the outstanding loans that are coming under moratorium are ranging from 30% to 70%.
Not only has there been an increase in the number of borrowers asking for the moratorium, but Finway has also observed a sharp fall in the demand for loans. The customers are being reluctant in taking loans or taking any risk in their business; the only thing in their minds right now is to pay the loans back as quickly as possible. They are cutting down the costs drastically, and all they are doing is re-structuring their loans. Most of the NBFCs, in fact, are facing such situations with regard to borrowers.
The borrowers are already facing a lot of problems due to pay cuts and layoffs right now, and the majority of them have agreed to not spend any money on the non-essential items for the next few months, till the situation gets a little better.
“There are cases now coming to us, where the customers just want a lower rate of interest, they don’t want any additional amount. Everybody is playing safe with regards to their borrowing and spending habits. They are unable to pay EMIs and are under tremendous pressure, but in no circumstances, they are looking to raise more debt as they already feel the burden. On the contrary, they are liquidating their assets to become debt-free,” said Rachit Chawla, Founder and CEO, Finway.
According to Finway, the Covid-19 pandemic that began as a health emergency has now evolved into a full-blown economic crisis. There is not one sector in the country that has been untouched by this menace. The economic situation has been grim and financial uncertainty has sneaked up on salaried individuals as well as borrowers. Consequently, people who are under the pressure of repayment of loans are going through a very difficult crisis.
“There are some solutions or countermeasures on the table, however, that people can follow. Most important thing is to build an emergency corpus for unprecedented financial crises. Expenses also need to be compartmentalized into different categories of needs and wants. Automating savings and investments can save people from going on unnecessary breaks from investing. And lastly, people need to study their finances seriously and plan accordingly. The next few months are going to be rough, but good planning can go a long way,” Chawla adds.
The EMI moratorium is expected to ease the liquidity constraints of borrowers. During the moratorium period, the borrower need not pay the EMIs but that will not mean that the EMIs are waived off. The borrower of home loan, car loan or the credit card user has to pay the accrued interest at the end of the moratorium period.
Source:- financialexpress.com