TheMoneyShow with Mr Raj Khosla: Restructuring of Personal Loans & Higher Gold Loan LTV

Last week RBI has come up with two significant announcements after the MPC meet. Mubina Kapasi of ET Now interviews Mr Raj Khosla, Founder & Managing Director, MyMoneyMantra on The Money Show this week to decode how RBI’s latest announcements will help the households. Here are the excerpts from the show.

Ms Kapasi: The RBI has announced two interesting changes. For households, especially those who have taken loans the provision to restructure loans after the Moratorium is of key importance. Furthermore Gold Loans have become all the more attractive. Not just because of gold prices but now the RBI has also allowed 90% of value to be given as loan. This definitely will let you get more buck for your gold.

First up, Welcome Mr Khosla and thank you for joining us at ET Now.

Q. Before the Moratorium ends on August 31, RBI has now announced a loan restructuring option for individuals. What does exactly this mean?

Mr Raj Khosla: Proactive and positive development and RBI has acted well in time. Personal Loans, whether they are Home Loans, Credit Card Outstanding, or Car Loans, any of the borrowers for these products if feel they cannot service the EMIs now or before December 31 can approach the lender and ask to readjust the EMI. This is a very positive step by the central bank. I think a blanket moratorium would have been counter-production but with an option to restructure, any stressed borrower can reach out to the bank & reset loan repayments.

Q. Is restructuring different from Moratorium & will there be any hidden charges or interest on interest, as we saw in case of Moratorium?

Well I will term the interest accrued during Moratorium as Interest on Interest. It is an interest on monthly EMI due. EMI has principal as well as interest component. If repayment is postponed certainly there is a cost involved for delaying that.

Moving ahead to restructuring, all of us should wait for recommendations of Kamath Committee. Once the precise guidelines are out and each board of bank has have interpreted and laid out policies for restructuring can we define the fine-print or rules to watch out for restructuring a loan. In the absence of these details, we can only say that one should definitely be careful about the hidden charges and interest cost as the previous interest cost is all you are trying to delay with the new loan. So, be watchful of the cost of the option.

Overall, if you have money to repay your loan you must repay loan. Restructuring should only be availed of as a last resort.

Q. Who will be eligible for the option of restructuring a loan? If I am unable to repay my EMI after Moratorium, can I expect a call from my bank for this?

Well, if you think you need to restructure your loan, you should contact your bank & don’t wait for bank to approach. Invoke the lender and convey that I want to opt for restructuring of my loan and ask for resetting your loan.

It’s not only about borrowers only. It is also about lenders. Once the fog clears out, the lender will also be able to go out in the market and serve new loans.

Currently they are not able to assess the creditworthiness of the borrowers. So with restructuring in pace, all ahead it will be a win-win for both lenders and borrowers.

Q. Now let’s discuss about the sheen of Gold Loans. With increased LTV, are Gold Loans will be more active for banks, NBFCs and all unorganised lenders as well?

Yes, all that glitters is not gold but now gold is really glittering. In the recent months, the price has risen by 30%. And RBI has also permitted 90% of the loan against the value of metal. So these two factors helps to unlock maximum value of your assets in clearly unobtrusive manner. Also mind this, the proposed increase in LTV for Gold Loan is only for banks & not NBFCs.

Besides, interest rate is also competitive on loan against Gold . Full marks to banks!

Q. Between a Personal Loan and Gold Loan, do you suggest Gold Loan would be a more better or prudent option, given the fact that each Indian household has some amount of Gold asset?

There is hardly any room for assessing credit worthiness of borrower currently but with gold in hand, one can swiftly avail of funds against it. For Personal Loan however you need your financial situation to be assessed and the rate offered can also be higher in some cases. In the current situation thus a Gold Loan is a quicker & more prudent option.

Q. Can you please decode what does RBI’s additional special liquidity for NHBs mean for households? Will this make it more easy for customers to get approval on a Home Loan and will interest be more attractive? 
 

Yes, it will be easier for you as this is second tranche of additional liquidity to National Housing Banks. Eventually this additional liquidity will reach out to customers who want to buy house and thus will make borrowing easier.

Interest rates have never been as low as now. If you have to buy your dream home, now is the time to make that deal. The price of real estate is at a low end and thus this is the best time to buy your dream home.

Put these two factors together. Buy a home for self occupancy.

Now let’s take some viewers’ queries:

VISWANATHAN

I was planning to take a loan by mortgaging some shares. Which loan is suited for this? Would you suggest I take a gold loan instead of this?

Ans:

Indeed, you must take Gold Loan as against a loan against shares. If you have Gold which you are not using, you can get substantial value as loan at fairly low interest rate. Compare to Personal Loans, you can currently get better & favourable terms with Gold Loan.

KRISHNA

Will restructuring my Personal Loan affect my Credit Score? Particularly, if I tend to make payments properly and in time?

Restructuring a Personal Loan will not impact your Credit Score at all. In fact if you stick by the terms of restructuring like as you say you intend to pay up instalments on time, it will improve your Credit Score.

If u don’t need restructuring don’t avail of it, if you do, stick with the terms. Your Credit Score will improve. The same bank with whom you have restructured the loan & repaid in time, will be happy to entertain your requests for further credit in future as and when you need. Head Held high!

Thank you MR Khosla for breaking down the RBI’s announcements in such a simple manner for the viewers and joining ET Now.