RBI has come up with many policies and directives that have implications on personal finance. Though the policy rate was kept unchanged by the RBI's Monetary Policy Committee, it does not mean the interest rate on deposits or loans will not change. Besides rates, the RBI's measures will also have impact on your borrowing capacity for gold loan, and a dispute resolution mechanism will help you online payments related issues.
Relief for distressed home loan borrowers
Home buyers and borrowers are the most affected due to the economic slowdown. The central bank has come up with a resolution plan to help developers and retail home loan borrowers.
"The loan resolution plan, which allows for payment moratorium up to 2 years, for corporate and personal borrowers, should provide a breather to stressed real estate developers and individual borrowers in the housing segment alike," says Shishir Baijal, Chairman & Managing Director, Knight Frank India.
What it means is that if you are facing any problem in repayment due to current economic hardship you can approach your lender and get your loan restructured based on your repayment capacity. However, this facility will be available only to those borrowers who have paid regular installments till March 1, 2020.
Home loan EMIs to fall
Though the policy rate was unchanged however the Additional Specialty Liquidity Facility (ASLF) by RBI will help the sector reduce the rates further. "ASLF of Rs 5,000 crore to the National Housing Bank will provide much required cushioning for the housing finance companies to lower the home interest rates. This will translate into an upsurge in demand with a lower cost of credit to the home buyer and materialise in a likely upsurge in residential inventory offtake, especially in the near onset of festivity in the country," says Rohit Poddar, MD, Poddar Housing and Development.
The RBI had already done a massive rate cuts in the beginning of the year which are yet to be passed on to the borrowers.
"The pause on rate cuts was also on the back of previous transmission of rate cuts to consumers through mortgage loans. In response to the cumulative rate cut of 115 bps announced since February 2020, banks have already transmitted 70-90 bps in their home loan portfolio," says Ramesh Nair, CEO and Country Head (India), JLL.
Future of overall interest rates
Many experts were expecting a rate cut in this policy meeting, but rising inflation played the spoiler. "RBI has clearly stated that there is further room for a rate cut, but the RBI will wait and watch for a 'durable reduction', in inflation for further rate action. This amounts to saying that only if there is sustained fall in inflation especially food prices RBI may consider further rate cuts. This does not rule out further rate cuts but makes it linked to inflation performance" says Joseph Thomas, Head of Research - Emkay Wealth Management.
A pause at higher rate aims to attract global funds. "As the US Fed kept rates unchanged, it enables us to retain our rates at current levels, which also helps lure foreign capital. The pause allows RBI an opportunity to monitor upside risks to food inflation and cost push pressures from rise in fuel prices," says Amar Ambani, Senior President and Head of Research - Institutional Equities, YES SECURITIES.
If inflation subsides going forward, a rate cut looks quite possible. "Due to the growth slowdown, the RBI may act in future policies and inflation is also expected to come down in H2 due to base effects. Enough liquidity is ensured for the market," says Sudhakar Shanbhag, Chief Investment Officer, Kotak Mahindra Life Insurance Company.
If you are a borrower, the chances of you getting benefit of lower EMIs with reduced interest rate looks higher. However, if you are depositors waiting for rates to go up then you may have to wait longer because a rate increase is less likely in next 3-6 months. So if you have target of medium term deposits of 1-3 years, you can book FDs to lock in the current rates. If you are looking for long term deposits you can book short term FD of one year now and review interest rate next year.
Your capacity to take gold loans is higher
Seeing the distress faced by many people who are unable to get unsecured loans from the lenders, the RBI has allowed higher loan amount from secured gold loan.
"Lenders have become more cautious while approving loans because of income disruptions, as a result of the pandemic. Gold loans are backed by relatively liquid collaterals and hence, lenders take a more relaxed approach while sanctioning gold loans to those with poorer credit profiles," says Naveen Kukreja - CEO & Co-founder, paisabazaar.com.
"Increasing the cap on LTV ratio in gold loans from 75% to 90% till March 31, 2021 will improve credit flow to those with poorer credit profiles," he adds.
As the gold prices have seen an unprecedented rise in last six months, the people holding the yellow metal can get higher loan than earlier. With this RBI action people who have gold can easily get much higher amount as loan.
Resolutions of online payment related disputes
With rise in digital payments, disputes have also grown. Many have faced issue like failed transactions, non-transfer of funds, non-refund of cancelled transactions, and so on while doing digital transactions, but they did not have any online mechanism to register their claim.
Now the central bank has come up with a mechanism to help people facing such issues. "Setting up a system for online dispute resolution (ODR) mechanism specifically for digital payments will increase transparency and improve dispute resolution in the digital payment ecosystem," says Kukreja of paisabazaar.com.
Offline small payments to tackle network connectivity issues soon
There have been many instances when people are unable to use digital payments due to absence of internet or mobile network. To enable payment in such a scenario, RBI has launched a pilot scheme for offline remote payments.
Under this scheme payment system operators (PSO), which can be banks or non-banks, will offer digital payments offline. These are the payments that do not require internet connectivity to take effect. The payment solutions provided to users will be subject to terms and conditions.
Payments could be made using cards, wallets or mobile devices or through any other channel. Payments may be made in remote or proximity mode. Payment transactions can be offered without any Additional Factor of Authentication (AFA). The upper limit of a payment transaction will be Rs 200. The total limit for offline transactions on an instrument will be Rs 2,000, at any point of time. Resetting of the limit shall be allowed in online mode with AFA.
The PSO shall send real time transaction alerts to users as soon as transaction details are received. Contactless payments shall adhere to EMV standards. Payment transactions in offline mode without AFA shall be at the choice of the user. If the pilot is successful, the RBI will allow this facility to be available across the country soon.
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