The second wave of covid is likely to impact livelihoods like the first. Many states have declared closures and others may do the same as the medical infrastructure is inadequate to handle the growing number of cases.
The Reserve Bank of India (RBI) has yet to declare a moratorium or other relief for borrowers like it did last year. Can a borrower or credit card user go to the financial institution to seek redress?
“If they have lost their jobs or if employers have cut their wages, they can contact the lender or the card issuer and renegotiate the payment terms,” said VN Kulkarni, retired debt advisor and banker. . He was also the chief advisor to Abhay. Credit Counseling Center, an initiative of the Bank of India.
“It is not easy, however. Most banks will reject a loan restructuring request saying their policies do not allow it. The borrower should be persistent and approach the top officials of the bank, especially the general manager of the collection department, ”Kulkarni said.
When it comes to home loans, there is an asset mortgaged with the lender. It can take possession of the asset under the Sarfaesi law (securitization and reconstitution of financial assets and realization of collateral).
But for personal loans and outstanding credit cards, financial institutions must go to court and file a civil recovery action.
“Courts can take years to issue collection orders. It is in the interest of the lender to help the borrower if they are ready to pay and are looking to relax, ”Kulkarni said.
Lenders have a board approved policy for loan restructuring. “But most lenders don’t offer restructuring to retail borrowers because there is a cost involved. Most would prefer a one-time settlement, ”said Adheer Dhar, head of personal loans and fintech, Clix Capital.
He further explained that when a lender restructures a loan, he will have to forfeit the interest and give the borrower some relaxation. The cost of collection and restructuring is considerable. On small loans from ??3-5 lakh, lenders can no longer continue.
Over the past decade, lenders have focused on providing personal loans to employees. In this segment, the default values are generally low. Even if a borrower is unable to repay, it is usually for a month or two. Once the borrower finds a new job, he begins to repay.
In rare cases, a lender may close the current loan for a delinquent borrower and reserve a new loan with revised terms and conditions, Dhar said. Lenders can offer such restructuring if the principal amount is large or when some cities witness a natural disaster.
Credit card issuers, however, offer a settlement.
“A credit card, by default, is not a term loan. A cardholder must repay monthly. If someone has accumulated a large debt and is unable to repay, the issuer can convert the outstanding balance to an IME and ask the cardholder to repay in two or three installments. The issuer may be willing to waive a certain percentage of the interest charge. The practice is common, ”Dhar said.
As this is a payment, the customer will not be able to use the credit card even after the full refund has been received. It is a forced closure because of colonization.
Remember that any settlement or renegotiation of a loan or credit card debt will affect your credit score.
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