For the first time, RBI Governor Shaktikanta Das used the word ‘contactless’ in Moentary Policy Report (MPR) announcement on August 6, 2020. He was talking about transactions in the context of the ongoing pandemic and said “this is a word I’ve stressed on during the crisis. There’s greater need to transact digitally, and to avail financial products such as loans and credit cards in a contactless manner to not just cut health risks, but also speed up the delivery of much-needed credit with the help of technological innovations such as Video KYC.”
Good News: Restructuring Of Retail Loans
The big announcement today was the proposed restructuring of personal loans for borrowers struggling with repayments due to economic or pandemic-related reasons. The RBI used the term personal loans to describe the loans eligible for restructuring. Clarity is awaited on whether other retail products such as car or home loans are also eligible.
The RBI said those borrowers, who had been repaying regularly till March 2020 can be provided a restructuring of their loan through a framework to be decided by the bank. The framework will need to be fixed by December 31 and implemented within 90 days from then. With it, a retail loan tenure can be extended by up to two years with or without the option of a new moratorium. The operational details of the restructuring are now awaited from banks. Borrowers who have had difficulties making EMI payments need to be in touch with their lenders.
Bounce Back Once The Moratorium Ends
The five-month moratorium on loan payments ends on August 31. Loan payments need to restart from September 1. This needs to be seen in together with the possible restructuring of retail loans. Availing the moratorium leads your loan becoming bigger due to unpaid interest. Therefore, to erase the additional debt you’ve incurred, aim to pre-pay within the next 12 months about 120 per cent of the EMIs you had to defer. For example, if you deferred five EMIs, pre-pay six additional EMIs over the next 12 months. This will help you bounce back in your repayment plan and get out of debt quicker.
Good Time To Refinance
We saw a pause on rate cuts. The repo rate has fallen from 6.50 at the start of 2019 to 4.00 at the last bi-monthly review, including 115 basis points in 2020 alone. Inflation has increased. Meanwhile, the transmission of rate cuts have also been substantial: there was a decline of 91 basis points in the WALR between March-June on fresh rupee loans.
Therefore, the interest rates that we have on loans are the lowest we’re going to get for now, with the possibility of further cuts in the future assuming benign inflation. If you had been waiting to take a new loan, or refinance existing loans, or make an impactful pre-payment, the current situation would be a good time to do so.
Better Value On Gold Loans
Households can now get better value on their gold when they apply for gold loans. These last few months have seen immense financial hardship, and many have had to borrow against assets such as gold. Earlier, you got a loan-to-value ratio of up to 75 per cent on gold loans. Now, with the RBI’s nod, you can borrow up to 90 per cent. This is a positive move that will allow households to borrow more at low rates to manage ongoing liquidity challenges.
The introduction of Positive Pay on cheques of Rs50,000 and above means that an added layer of security has been provided to the instrument. When you issue a high-value cheque, you can upload its details (such as front and back images) to the bank. When the bank receives the cheque from your beneficiary, it will verify the details uploaded by you.
Despite the strides in increasing internet penetration across the country, dependability of the internet connection continues to be an issue especially in remote areas. With a view to enable digital payments even in places experiencing no connectivity or slow internet speeds, the RBI has been encouraging the development of payment solutions that enable use of mobile phones, cards, wallets, etc., even in places with low or no internet connectivity. Going forward, we can expect to see card- and wallet-based solutions similar to UPI and mobile payment transactions using USSD code that are possible even without internet or smartphones.
Digi Payments Dispute Resolution
Grievance redressal for online payments is set to be easier going forward, with the RBI mandating Payment System Operators to introduce Online Dispute Resolution (ODR) Systems. The implementation would be in a phased manner, starting with ODR systems for failed transactions. This acts as the first step for customers in case of a dispute or grievance regarding a payment transaction and simplifies the process of registering a complaint in such cases. Such a measure will give people greater confidence while transacting digitally.