Life after the lockdown ends

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As at end-March 2019, 1,483 FLCs were operational in the country. During 2018-19, 145,427 financial
literacy related activities were conducted by the FLCs as compared to 129,280 activities during the
preceding year.Ref RBI Ann Report for the year 2018-19.

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the share of Indians who take loans for productive purposes is declining. Short-term loans at crushing
interest rates dominate rural India, while in urban areas, 22 to 25 per cent of households live under the
burden of debt

“There has been a drastic slowdown in economic growth in the past three years. Companies are not
doing well, incomes have remained stagnant, there have been many lay-offs, and people who have
taken loans can’t pay their EMI
“Many innocent people who have missed EMIs because of unavoidable financial situations are harassed
by banks and their recovery agencies. Many agents abuse and defame defaulters, disclose their private
information, and in some cases even resort to what could be classified as extortion. Their actions
destroy people’s lives and, in some cases, even drive them to suicide,”

The RBI also has clear guidelines concerning recovery agents but these are flouted regularly. It says that
banks must get the identities of all people hired as recovery agents verified by the police, and cannot
hire anyone who has criminal antecedents for the job. Banks are also required to clearly mention to
customers details of any recovery agency they have appointed. Agents who visit customers’ homes and
offices are required to carry ID cards issued by the bank.

However, the interest on your loan will continue to accumulate during this six-month
period, extending your loan tenure. For example, if you had taken a Rs 45-lakh home
loan in January 2020, opting for the six-month moratorium would add 24 EMIs to
your tenure. This is assuming that the original tenure and rate of interest were 25 years
and 8 per cent per annum, respectively. This, even after factoring in the repo rate cut
of 40 basis points. Put simply, thanks to the compounding effect, a six-month
moratorium will set you back by Rs 6.28 lakh, which is the additional interest you
have to shell out over the extended tenure. Since the interest component in the initial
years is higher, those who have taken loans recently will see their interest burden, and
thus the number of EMIs, go up sharply. The impact will be less severe for those who
are close to paying off their loans.
“Given the increase in the interest rate burden, you must avoid opting for the EMI
moratorium. Use the facility only if your cashflows are severely constricted. The
salaried individuals, who have not faced pay cuts, should keep paying EMIs as per the
original schedule,” says Vipul Patel, Founder, Mortgageworld.in. The two rate cuts –
75 bps in March and 40 bps now – have reduced the interest burden considerably for
borrowers. Use the benign interest rate regime to continue paying your loans instead
of settling in favour of temporary liquidity relief. Keep a tight lid on your expenses, if
you have to, but do not compromise on EMI payments.

Those who have already opted for the moratorium in March, too, can see if they can
start servicing their loans. If their financial situation does not permit, however, they
can opt for the moratorium extension as the last resort, even if it means having to
shoulder the burden of accumulated interest. “The deferred interest will need to be
repaid on the same terms that were applied for in the first moratorium. For long-term
loans, the accrued interest will be added to the principal, and the EMI or the tenure
will be recalculated. Some lenders also provide the opportunity to pay off the
accumulated interest in one-shot at the end of the moratorium,” says Adhil Shetty,
CEO, Bankbazaar.com.

The share of personal loans in the books of banks has outgrown credit to large industry over the last 12
months. Home loans are now the single biggest sector in terms of advances, accounting for nearly 15%
of bank credit as against infrastructure which has an 11.3% share. Personal loans on the other hand have
grown 17% and stand at Rs 25.3 lakh crore (28% of the loan book) as of end February 2020. Growth in
the personal loan segment has been driven by home loans, which also grew 17% year-on-year to Rs 13.3
lakh crore. This surge has increased the share of home loans in overall bank credit to 14.8%. Other
personal loans, which include unsecured credit, grew at 20% to Rs 7 lakh crore, or nearly 8% of the
banking sector’s portfolio According to Macquarie Capital associate director Suresh Ganapathy,
“Drawing parallels with the global financial crisis of 2008 won’t work here…At that time, banks lent
recklessly, not much analytics was used, dependence on Cibil or Cibil’s database at that time was still
developing. Today, Cibil has 400 million plus unique records,” he said

 f mounting debt and unpaid EMIs are giving you sleepless

nights,what can you do?  The very concept of unsecured loans
has found takers in many Indians, who, like their Western
counterparts, are borrowing large sums of money to live in the
present, paying little heed to the consequences of such a
dangerous lifestyle. Credit cards and loans flooded onto the
markets giving way to way to a new generation of young India –
willing to borrow to improve their life style and not reluctant to
pledge future income flow for immediate gratification. So we now
have Men and Women (Gen Y) Smart, Educated, digitally
savvy, Socially networked  and in debt. Our article Life of Debt –
Responsibly talks about Kinds of Loans, Good and Bad Loan.
 Reserve Bank of India way back in 2008 talked about it
in  Financial Literacy and Credit Counselling Centres Credit
Counselling (known in the United Kingdom as debt
counselling)  can be defined as counselling that explores the
possibility of repaying debts outside bankruptcy and
educates the debtor about credit, budgeting, and financial
management‘. It serves three purposes.
 First, it examines the ways to solve current financial problems.
 Second, by educating about the costs of misusing a credit, it
improves financial management.
 Third, it encourages the distressed people to access the formal
financial system.

“A sharp decline in economic activity and a rise in unemployment will lead to a

deterioration of household and corporate finances, which in turn will result in increases
in delinquencies,”

The coronavirus crisis and the restrictive measures that many countries are taking to contain the
outbreak can have a negative impact on people's mental health and well-being, the World
Health Organization (WHO) has warned. it is important to consider the effects of this pandemic
on the mental health of people - while providing psychological support for the general public.
During the current lockdown period, the fear of coronavirus infection, loss of
employment or financial insecurity is haunting the people isolating themselves for the
good of the public health. While employees fear financial insecurity, their employers are
worried about the reduction in revenues following a decline in sales. "Corona lockdown
will have long-term ramifications on the Indian economy. In any situation when you are
not allowed to go out of the home, the first side effect is frustration because you cannot
do what you want to do. Human beings are social and gregarious. You want to meet
people, you want to talk to people and you also want people to see you but have been
prevented by using the authority which does not sit well with anybody," says Professor
Ravinder Deol, a Chandigarh-based senior psychologist. The fear of losing financial
independence is another side effect the people employed in the unorganised sector can
face owing to this lockdown. "There are large numbers of people, especially in the
unorganised sector, who depend on daily wages. They have to work every day and then
they get wages at the end of the day. They go and buy their necessities and run their
family," says Professor Ravinder Deol. So what is the way out? How one can avoid
psychological impairment or maintain cognitive health. Professor Deol suggests mind
stimulating activities like reading, writing, games, walk, dancing or singing.
Software engineers working with IT services providers have more things to worry about amid the
ongoing Covid-19 virus outbreak. They are being released from projects, find difficulty in getting new
ones, and there is an unofficial hiring freeze as companies grapple with the impact of the pandemic.
Employees are being released from stalled contracts in the transportation vertical, which has been hit
due to the global spread of the pandemic, as airline and travel companies are at a near standstill

With Prime Minister Narendra Modi announcing a 21-day national lockdown

on Tuesday to counter the spread of the novel coronavirus, lenders have now
put some of their retail loan collections on hold, according to three people
aware of the development. This includes physical collections on repayments
from microfinance, housing and passenger vehicle loans, among others, the
people said. The suspension on collections will last for three weeks and
lenders will take a call on future repayments thereafter. The microfinance
industry has suspended its collections during this government-mandated
lockdown, Harsh Shrivastava, chief executive officer at industry body
Microfinance Institutions Network, told BloombergQuint. According to
Shrivastava, all of MFIN’s members have been asked to inform customers
that collections will resume only after the lockdown ends, and that they should
keep the installment money with them. MFIN is in touch with the RBI to ensure
that the 56 million microfinance borrowers continue to get support from their
lenders, not just now, but when the lockdown lifts and life resumes,” he said.

In a report released on Thursday, rating agency ICRA Ltd. said that non-bank
lenders could see a sharp rise in their default rates and credit costs owing to
the impact of Covid-19-related disruptions. Loans toward retail housing,
affordable housing, vehicle finance, small business loans, real estate and
other sector could see 50-100 percent rise in their default rates and credit
costs, it said in a report
In an economy already reeling under a demand depression, rising unemployment, and
lowering of industrial output and profits, all of which happening together for several
quarters now, a supply-side constraint would deliver a big blow, jeopardising growth
prospects and social and economic wellbeing of a large number of people. It may take
a few more months for the final production and sales to resume.
"In the interim, between now and full production resuming, a large number of
people would have been unemployed and not earned any income. As a result,
in the second round, demand-side will become a serious constraint."
Rangarajan says, "The impact of lockdown will be felt through several
channels, weakening of domestic demand, disruption in supply chain and
disruption in financial market. All of this would result in declining production
and retrenchment of employees."

The MSME sector, which has created more than 90% of the jobs in India, expects a
large number of these jobs to disappear if lockdown is extended for long. The
association for entrepreneurs said each sector will see loss of jobs. Venkatesan said the
hospitality industry, which employs 4 crore people, could see 1.2 crore of those jobs
disappear at the end of this crisis; while the retail industry, which employs 4.6 crore
people, may face up to 1.1 crore job loss. small businesses would see cash crunch as
one of the primary challenges due to a sharp fall in business. As movement of
perishable and other goods are getting delayed or stuck, these businesses stare at
mounting losses. GAME has also highlighted that MSMEs will see operational
challenges with low or zero manpower over the next few weeks since migrant workers
are fleeing to their hometown.

Senior Citizens-he biggest threat they face at present is the constant worry and mental
stress about their deteriorating financial investments and failure of banks where they
have invested their lifelong savings.

Missing 2 instalments may add 10 mths to loan It Could Also Hike Your EMI Outgo By 1.5% Babar Zaidi
Hit by the lockdown and faced with uncertainty, many people are looking to avail of the repayment
relief that banks are offering. Although banks are yet to announce the details of the relief package and
how it will work out, we do know that this is only a grace period and they are likely to charge interest for
the unpaid amount. Missing two instalments could extend your loan by 6-10 months, or increase the
EMI amount by 1.5%. The borrower may be given three options by the lender: Option I: One-time
payment in June of the interest that accrues in April and May Option II: Add the interest to the
outstanding loan and increase EMI for remaining months Option III: Keep the EMI unchanged but extend
the loan tenure. The number of additional EMIs will depend on the age of the loan Let us assume a
borrower took a home loan of Rs 50 lakh at 9% for 20 years. The EMI comes to Rs 44,986. If he wants to
skip the next two EMIs (April and May), the table given here (see graphic) shows how the moratorium
will impact his repayment schedule. Clearly, the longer the remaining tenure, the bigger is the impact.
This is because the interest accounts for a larger portion of the EMI in the early years and progressively
comes down. Even after the first year, the interest accounts for almost 80% of the EMI. But in the 19th
year, the interest portion is less than 10% in the EMI. So, people with older loans taken 10-15 years ago
will not feel the burden as much as someone with a new loan taken 2-3 years ago. Ironically, people with
older loans may not really need the moratorium as much as those with younger loan