Express press service

NEW DELHI: Indians are trapped in a whirlwind of financial and health uncertainties – which quickly put them out of sight in terms of financial management.

In a disturbing repeat of the economic distress of the first wave of Covid-19, borrowers are holding onto their funds even at the risk of defaulting as efforts to slow the spread of infections continue to inflict unemployment, wage cuts and financial losses. higher medical costs.

In April, for example, 29 million automatic debit transactions worth Rs 22,000 crore made through the National Automated Clearing House (NACH) failed, mainly due to insufficient funds.

This reflects a bounce rate (read: unsuccessful trade) of 34.05% in April compared to 32.76% in March or before the second wave. Simply put, these are recurring payments such as Equivalent Monthly Installments (EMI), utility bill payments, and insurance premiums where borrowers have accepted automatic debit mandates and funds are withdrawn monthly. on their bank account.

In terms of value, as many as 27.9% of those deals failed in April compared to 27.5% last month, with most banks warning it could get worse in May as more states impose lockdowns.

Recently, HDFC Bank CEO Sashidhar Jagdishan said retail lending could lead to an increase in delinquencies in the short term and borrowers who need to take cover under regulatory exemptions such as the moratorium and the restructuring after the first wave are more likely to fail.

For borrowers, losing income means making tough choices, like skipping a loan payment, but here’s what you need to know:

Non-payment of past loans can affect your CIBIL score and lenders will be reluctant to grant you a loan in the future. In the case of multiple loans, a lender may also impose a penalty on defaults and late payments.

This usually applies to an unsecured loan where the bank has no collateral as collateral against non-payment.

Multiple defaults or zero repayments of interest or principal within the past 90 days could put you in a debt trap.

And getting out of the debt trap is no easy task at all. Let’s look at the options one can consider to avoid a debt trap:

Will banks let you skip a loan payment?

If you are unable to pay the next IME on time, you need to be proactive and communicate your situation to the lender.

Your bank likely has deferment and forbearance plans, but you’ll need to take the initiative and seek help first. You can then benefit from one of these options:

Reduce NDEs: If you are having difficulty with the amount of NDEs, consider reducing monthly expenses. You can contact the lending institution and ask them to increase the duration of your loan.

According to experts, this would reduce your monthly EMI amount even though you might end up paying a higher interest amount. Once your financial situation is stronger, you need to increase the amount of the EMI again.

Benefit from restructuring: If a borrower is unable to keep the terms and conditions of his loan, he can ask the lender to relax it.

This can lead to lower fees, lower interest rates, longer loan terms, a moratorium on interest, among other relief measures.

The Reserve Bank of India recently allowed eligible borrowers, who did not use the first loan moratorium offered last year, to use the second, and those who took advantage of the first can get an extension of the moratorium period.

Restructuring applies to all types of loans, which means that you will not be called a defaulter if you repay the installments after this period.

Liquidate Investments: Experts say that to offload an outstanding loan, borrowers can opt to liquidate underperforming or non-performing investments to significantly save interest on those loans.

Retail loan to see higher defaults

Banks expect retail loans to experience higher defaults in the near term. Critically affected states account for around 48% of retail credit, according to analysts at Emkat Global Financial.