Borrowers Face EMI Crisis Due To COVID-19

Ragini (name changed) is a woman who had never previously defaulted on any kind of loan until March 2020. Now, loan recovery agents make her rather stressed. She is a 32-year-old teacher who lives in Visakhapatnam. When COVID-19 struck, and a lockdown was imposed in the country, she lost her job, and ever since then; she has been avoiding recovery agents due to the non-repayment of loans. She says that she was unable to pay back her EMIs after March due to the loss in income, which is why she was regularly harassed by recovery agents. Some of these agents even reached her parent’s house and traumatized them to recover all the missed payments.

She is just one example of countless Indians who have lost their sources of income this year and have had to miss payments on bank loans. This new crisis has hit retail borrowers significantly as they are unable to repay their EMIs and loans. In fact, this is just the tip of the iceberg. Most Indians are even struggling to meet their daily needs due to the sudden loss of their jobs this year. There has been an increase in the bounce of auto-debit EMIs, and borrowers fear the long-term implications of defaulting on their payments. According to estimates, salaried individuals have lost close to INR 21 million between the months of April 2020 – August 2020. Although the recovery process is slowly taking place, most Indians are still not being able to meet all the debt obligations.

Between March 2020 – August 2020, the Reserve Bank of India has permitted a moratorium of six months. However, it was still believed to be insufficient by borrowers due to the huge damage caused to their cash flows because of the pandemic. As per data released by the Central Bank of India, over 50% of the retail borrowers with ongoing loans had chosen a moratorium by April end. As expected, corporates were much more resilient during this time and had a moratorium of only 31% during the same time period.

With monthly loan repayment obligations back in full force, most Indians have little to no bank balance. Data suggests that 40.1% of the total auto-debit transactions on the platform of National Automated Clearing House failed in October. This was caused because of insufficient funds and a 31.5% bounce rate in February. It is clear that the loss of livelihood due to COVID-19 has hit lenders directly, but it has also resulted in a difficult time for borrowers who are not being able to meet their debt obligations. Although the six-month moratorium from the Reserve Bank of India was welcome, it was not enough to help borrowers get back on their feet and start repaying all their loans each month.

The COVID-19 pandemic has created job losses across all sectors and industries, leaving the common man struggling to make ends meet. In the face of such hopelessness, Indians like Ragini are being harassed by recovery agents for default payments. It is clear that the government needs to take steps to mitigate this issue so that we can quickly get back on our feet and look towards a better tomorrow.

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