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RBI gives a longer rope to households


The policy announcement from 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 covid-19 has induced RBI to directly address the concerns of distressed households with a slew of measures starting March 2020. The statement of the RBI governor on 6 August 2020 too has something for the household. One, distressed individual borrowers can look forward to more forbearance ahead. Two, households with liquidity issues can look forward to a higher amount of gold loan against their gold.

One, forbearance on personal loans. If you have an EMI to pay and you either lost your job or had a business loss, RBI has announced a relief plan for you. If you have paid all your EMIs till 31 March 2020 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 2020.

The relief you get includes an increase in the tenor of the loan to up to two years, payments can get rescheduled, a further moratorium. The exact rules of the games will be put in place by a committee headed by K.V. Kamath which will have to come up very quickly with this set of rules.

What you won’t get is a free pass of not paying back your loan. It is likely that the lender will impose costs to work this out, but that depends on further rules from the RBI and the Kamath Committee. Also, 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 a cost.

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 number to 90%. You will get 90,000 on gold value of 1 lakh till 31 March 2021. This is a big boost for households who are short of cash—typically those who lost their jobs or small businessmen whose businesses are shut.

Overall, good for households in distress, but I’d wait for the Kamath Committee to show the rules of the game and then the lenders to disclose what it would cost the household to get their loans restructured.

Monika Halan is consulting editor at Mint and writes on household finance, policy and regulation

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