Mrs Shalini Warrier, Executive Director and Retail Head at Federal Bank in a discussion shared insights on how the new borrowers at this pandemic situation have an impact on evaluation parameters, long-term effects of loan restructuring, and problems that borrows can face when gold prices fall.
The Reserve Bank of India had permitted a six-month loan moratorium allowed borrowers to extend their payments which gave them a breathing room amidst the COVID-19 pandemic stress, has ended on August 31, 2020. From September 01, 2020, Banks have started to restructure loans for the companies with dues for 30 days or less.
Restructuring plans are in place but must be opted for carefully, says Federal Bank.
Various Banks have started restructuring loans and collecting Equated Monthly Installments (EMIs) starting September 01, 2020, as per the guidelines of the Reserve Bank of India (RBI). Borrowers can opt to either resume payment of their instalments or can choose to restructure loans which will eventually increase the loan tenure.
Shalini Warrier, from Federal Bank, apprised the borrowers to opt for loan restructuring only if they require it, as it can have an impact on the cash flow and their credit score. In other words, it is advisable to request a loan restructure only if it is crucial or needed.
There will also be additional charges that will be added to the loan amount as the Banks undergo a lot of documentation for the customers approaching for a loan restructure. There could be changes in the interest rate which will be discussed by the banks to the customers.
Borrowers also have the option to convert the interest acquired by the loan moratorium and convert that to a separate loan.
Recently, it is noticed that there has been an increase in the demand for gold loans. Even during the economic downturn, the lenders have encountered a spike in demand for retail loans, especially in the southern region of India. “As per the first quarter (April-June), Gold loans have risen to 36 per cent year-on-year and 10 per cent quarter-on-quarter basis”, said Shalini Warrier.
Shalini Warrier (Federal Bank) in the discussion also advised borrowers not to take loans pledging 90% of the gold as gold prices are volatile. If there is a fall in gold per gram rate, the LTV ratio also falls, and the borrower will eventually have to pay the balance amount. In case the borrower is unable to repay that amount, the lender may further proceed to auction the gold.
After witnessing a standstill in the country’s economy during the nation-wide lockdown, many people are hesitant to take up home loans. According to sources, it will take a while for more customers to approach a bank for home loans. Good cash flow and secure income may further motivate more individuals to apply for a home loan.
Also, more people prefer smaller cars, due to which a marginal shift towards an increase in car loans is observed.
Banks are evaluating the cash flow of the salaried and self-employed new customers before sanctioning loans. In the case of industries, banks are analyzing the prospects of that industry in COVID and post-COVID environment.