The extended lockdown has increased worries in the lives of the common man. The already frustrated common man with job loss, business downpour, depleted savings with many mouths to feed, children’s education, paying rent, paying EMI’s, is becoming restless day by day wondering about his future financial stability & earnings. The pandemic Corona-virus drew an uncertain future, drawing additional fury lines on the foreheads of the common man already struggling with poverty & unemployment.
Though the government has announced various economic aids to support every sector of the economy, there still persists unrest among this common man. Recently the government announced a 20lack crore economic package in 5 different tranches to support the economy, which was equivalent to 10% of our country’s GDP. According to the Prime Minister the package focused on the 4 “L” i.e. the land, labor, liquidity and laws.
Liquidity i.e. injecting the money into the systems/economy is considered the next important concern after the supply of essential commodities to the people. The unrest in the common man is due to bewilderment in reaching and availing the liquidity.
Finance Minister Nirmala Sitharaman proclaimed – “The banks are asked to give term loans and working capital loans automatically to everybody without new or additional collateral— unless the customer says he doesn’t want it.” The move was especially driven to help the common man to tide over this crisis, particularly to overcome the problem of money liquidity.
A brief elaboration on the announced liquidity packages
I Announcement of collateral-free loans
- The Finance Minister in the first tranche of measures announced an Rs 3 lakh crore collateral-free automatic loan scheme with four-year tenure for MSMEs (Ministry of Micro, Small and Medium Enterprises). Rs 3 lakh crore emergency credit line will ensure that the MSMEs will have access to working capital to resume its business activity and to safeguard the jobs. The MSME definition was expanded to allow for higher investment limits (MSMEs with up to Rs 25 crore outstanding) and the introduction of turnover-based criteria (MSMEs with Rs 100 crore turnovers).
The eligible MSMEs will get 100% credit on principal and interest along-with a 12-month moratorium on repayments. The last date for eligible MSMEs to apply for this scheme will be till 31st October 2020.
But then what about the rest smaller enterprises or the self-employed, professional, free-lancers, street vendors, who are also categorized into the business units/enterprises other than the eligible MSMEs above. For such business units the government has announced a subsidy under the MUDRA scheme.
- The government announced a 2% interest rate subsidy for prompt MUDRA-Shishu Loans payees for a period of 12 months to assist loan payees under the MUDRA scheme. The loan amount is provided for a time period of 5 years. With 2 % interest rates it will not be difficult for the loan applicants to repay the loan installments in the form of EMIs.
MUDRA- Micro Units Development and Refinance Agency Ltd. is a Non-Banking Financial Company under The Pradhan Mantri Mudra Yojana (PMMY). It facilitates financing for the small and micro-enterprises that require loans. Mudra loans are designed to bring enterprises into the formal financial system or to fund the unfunded. Maximum loan of upto 10 lakhs is provided under mudra loans. The MUDRA loans are divided into three categories- Shishu (covers loans up to Rs 50,000), Kishore (covers loans between Rs.50,000 to Rs.5,00,000) and Tarun (covers loans between Rs 5,00,000 and up to Rs. 10,00,000) to signify the stage of growth / development and funding needs of the enterprise. These loans are given by Commercial Banks, RRBs, Small Finance Banks, Cooperative Banks, MFIs and NBFCs.
- The Indian farmers, fisherman and animal husbandry workers affected by the coronavirus lockdown are given the concessional credit through Kisan credit card. [Kisan credit card was introduced to provide loans to farmers at a low rate of interest (as low as 2% depending upon the prompt and timely repayment of the loan), maximum loan availed can be 3lacs and the validity period of the card is for 5 years. It offers credit to the farmers in two types, a) cash limit & b) term loan. Nearly about 25 lakh new Kisan Credit Cards have been sanctioned to help the affected farmers.]
II The relief for salaried workers and taxpayers.
The relief for salaried workers and taxpayers is made available in the form of extended deadlines for income tax returns, rate cuts in TDS & TCS and the reduction in the PF payments. As per the announced relief the due dates for filing income tax returns for financial year 2019-2020 is pushed to 30th November 2020, while the rates of TDS (tax deducted at source) & TCS (tax collection at source) have been cut by 25% for the next year. The statutory PF (provident fund) payments for both the employers and employees have been reduced from 12% to 10% for the next 3 months and the government is contributing the entire 24% of PF contributions providing relief both to the employer as well as the employees. (The EPF deductions are also slashed for 3 months to 20% from 24% of the salary.) This relief will facilitate more take-home salary for employees and give relief to employers in payment of PF dues, resulting in ease in liquidity- provided the employers pass it on the benefits to the employees. The salaried can also withdraw the PF amount from his PF account equivalent to 3 months basic salary and DA or 75% of the PF credit balances in the account, whichever is lower to meet his immediate requirement of liquidity.
In the wake of India’s lockdown to curb corona-virus these emergency credit lines of collateral-free loans announced by the government will help to “resume business activity and to safeguard jobs”.
Many salaried workers and self-employed are turning to banks to avail loans for their immediate liquidity for survival during the lockdown. The immediate funding loans such as personal loans and mortgage loans are the most popular forms for raising the funds among these classes of people. Owing to the high risk of non repayment of EMIs under the current no income scenario of the people, getting a personal loan becomes unfavorable and so opting for a mortgage loan to draw liquidity against the pledge of their secured assets/ properties has become the need for these people. We have countered a number of enquiries for mortgage loans on our portal https://www.loanfasttrack.com/mortgage-loan/apply-online-now.html.
But in the wake of lockdown, access to the mortgage loans has practically been shunned, resulting in a cause of distress, unrest and bafflement among many. The accounting reasons are: –
- Although the RBI has further reduced the repo rates additionally by 40bps on 22nd May 2020, the mortgage rates of the banks still stand high above 9.25%, while the home loan rate of interest stands low at 7.30%. Although purchasing a house is a dream of all but in the current scenario the immediate liquidity for survival is the priority and therefore along-with the home loan rates the mortgage rates also need to be subsidized.
- Although to start online processing of loans is the need of the hour for the banking industry, many banks have already started providing online sanctions in the form of provisional sanction letters, online registration and payment of stamp duty & franking charges but the disbursement of such loans is a matter of concern and therefore the liquidity in the hands of the common man will be available only after the lockdown opens. (private banks like ICICI, HDFC, Axis, etc. have initiated the online processing of loans)
- Getting collateral free MUDRA loans. Although the mudra loans are launched to provide loans to the needy self-employed businesses with no security or pledge, past instances have seen many banks insisting on having security pledge to avail the mudra facility.
- With respect to liquidity (in the form of loans) reaching the ultimate hands of the needy, the banks must be encouraged to provide low interest rates loans to the needy.
- Banking guidelines/norms can be amended, to make needy qualify for loan eligibility. Say for instance sanctioning loan on cash income of the applicant, reducing the minimum payment requirement criteria for the loan applicant to lowest (ICICI bank has reduced the minimum salary required criteria to Rs.10, 000/- per month from Rs. 20,000/-), processing fees to be deducted from the loan amount instead paying upfront, repayment EMIs to start after a period of 6 months or more.
- And most important, finding an innovative way for online processing of loans by all public and private sector banks.
Note: The interpretations and suggestions is the personal opinion of the writer.
Read more how the pandemic affects the life of the common man on “The Corona Effect – What Does It Mean For A Common Man?”
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