Dealing With Debt

RBI’s loan restructuring scheme that lasted till September 30 had costs and conditions attached. If you weren’t able to avail of it, here is what you can do instead

Manik Kumar Malakar

The first wave of the Covid-19 pandemic was devastating for many households, and the second wave in 2021 has only worsened the situation. Millions of people lost their jobs, while many households saw their incomes dwindle drastically. In June 2021, Mahesh Vyas, chief executive officer of Centre for Monitoring Indian Economy, said that over 10 million people became jobless after the second wave of Covid-19, while almost 97 per cent households saw their incomes reduce. In a recent write-up, Vyas said that unemployment rose in August 2021 to over 8 per cent from around 7 per cent in July 2021.

In this scenario, a record number of people have had to resort to personal and credit card loans. According to data from the Reserve Bank of India, personal loans grew by 11.2 per cent in July 2021, up from 9 per cent last year. The high penalties in personal loans and credit card loans have a way of ensnaring people into a debt loop as even a single unpaid instalment can drag them deeper in the cesspool.

While loan restructuring was an option till last month to manage your debt, it was not the best option. We tell you why and what you can do instead to deal with debt.

Not The Best Option

The Reserve Bank of India (RBI) stepped in earlier this year to provide some relief to debt-burdened individuals hit by the pandemic blues. On May 5, 2021, RBI announced its Resolution Framework 2.0 for debt restructuring. The restructuring was applicable to Covidstressed individuals, small businesses and micro, small and medium enterprises (MSMEs) with a debt exposure of up to ₹25 crore till September 30, 2021.

There were a number of options under the restructuring plan. The first was the extension of the loan tenure, wherein RBI had allowed extension up to 24 months, though the bank was to decide the final term. The second option was step-up EMI, wherein you could increase the EMI when your cash flows improve. For instance, if your salary has been cut due to Covid stress but you expect it to be rolled back in six months, this option could work for you.