The coronavirus continues to make headlines along with the world. The number of positive cases is alarming all over the world and the global economy impact has become tearer. India till now has managed to contain the spread of this deadly virus to a great extent as according to the numbers and WHO report India has not yet entered the phase three of COVID-19 spread.
India is currently going through lockdown-2.0 which as per the P.M’s announcement is going to last till 3rd May 2020. The first phase of the lockdown was for 21 days. Lockdown has helped India a lot to contain the spread of covid-19 cases as when you compare the graphs you will get to know that the nations who had the same number of cases of India initially has reached lakhs but in India, the current no cases is – 18828. Though we can say the government is successful in containing the spread, the lockdown has other impacts too. What’s worrying is the impact of lockdown on the Indian economy. There is a sudden pressure on incomes and demand, in particular—will widen pre-existing cracks in the Indian growth story.
The COVID-19 pandemic could be the most serious challenge to financial institutions in the country. Default by loan borrowers, especially from small businesses and individuals whose wages have eroded, are now about to loom.
“Retail loans and loans to MSMEs (micro, small, and medium enterprises) are likely to see sharp deterioration.
Before this pandemic, banks considered retail loans such as personal loans, credit card debt, consumer durable loans, vehicle loans, or loans to small business loans safe to lend. But due to the economic slowdown including unemployment and pay cuts banks no longer can rely on its repayment. Moreover, in view of the coronavirus RBI has already announced to cut the repo rate and reserve repo rate by 75 basis points and 90 bps, respectively.
Retail lending such as personal loans, line of credit and credit cards seemed a safe bet. As per the credit bureau CIBIL, last year unsecured personal loans had the lowest default rate as compared to any other category. But this time the condition is different where the whole world is going through an economic slowdown.
RBI has also permitted banks to grant a 3 months moratorium period to the customers for their ongoing loan installments. RBI said these steps have been taken to maintain the liquidity of money in the economy and masses as well. Well, we can’t bet how effective it will be, as the borrowers still have to pay the money and the interest is still going to add up, this can also increase their financial burden.