Goa: The Centre for Promoting Indian Economy (CPIE India) Goa Chapter – a think tank of professionals like lawyers, chartered accountants, engineers and doctors in India has urged the Goa CM Dr Pramod Sawant to intervene to help out thousands of poor Goan families who have availed of gold loans through NBFCs (Non Banking Finance Companies).

It has also written to the RBI and the PMO to bring all gold loans by NBFCs and private individuals like jewelers under the purview of the 6-month loan moratorium and make them eligible for the ‘interest waiver’

Thousands of Goan families are suffering, paying monthly EMIs through their teeth  to NBFCs like Muthoot Gold Loan, which have continued charging crazy interest rates all through the last 8 months of the pandemic, which had brought all business and economic activity to a standstill in Goa. 
The office of the Chief Minister is kindly requested to intervene in this matter as it affects thousands of Goan families who are already burdened heavily due to the stoppage of mining activity and who had taken huge loans to procure vehicles for mining-related transportation business. To pay up the EMIs and save their vehicles from being impounded over the last 8 months, they have availed of gold loans mortgaging their family jewelry but now are paying double interest at two places. A similar situation is prevalent in the tourism business where locals had purchased vehicles on loan for the rent-a-car business,  the CPIE India said.

Gold loan companies like Muthoot Gold loan are charging huge ‘interest on interest’ and other exorbitant penalties, said an analyst with the CPIE, Flynn Remedios  – a former financial journalist and economist with the Stock Exchange, Mumbai.

“Not just NBFC gold loan companies, even private jewelers are charging exorbitant rates of interest and penalties on gold loans, which are more than 3 times the interest due, Remedios claimed, adding that some gold loan companies are charging interest plus double interest (simple interest x 2) as additional penalty for late payment of EMIs on gold loans.

The Centre  had informed the Supreme Court which is hearing several petitioners in a slew of applications in the matter, that lenders have been directed to credit in the accounts of eligible borrowers by November 5 the difference between compound interest and simple interest collected on loans of up to ₹ 2 crore during the RBI’s loan moratorium scheme. The Ministry of Finance had said that after crediting this amount, the lending institutions would claim reimbursement from the Central government. However, there is no clarity when it comes to gold loans.

There is no clarity yet when it comes to gold loans and NBFCs like Muthoot Finance are charging huge penalties and compound interest, the CPIE India said in a media statement.  
The problem arises because the RBI has mentioned personal loans, retail loans, consumption loans and others, which are eligible for the waiver but Muthoot Gold Loan claims that they have no intimation from the RBI and that their  gold loans do not fall in the categories specified by the RBI.

In an affidavit filed in the Supreme Court, the government stated that the ministry has issued a scheme as per which lending institutions would credit this amount in the accounts of borrowers for the 6-month loan moratorium period which was announced following the COVID-19 pandemic situation.

Under the scheme, all lending institutions (as defined under clause 3 of the scheme) including banks and NBCs shall credit the difference between compound interest and simple interest in the respective accounts of eligible borrowers for the period between March 1, 2020 to August 31, 2020, the affidavit said.

Remedios demanded that Gold Loans should also be brought under this scheme. Presently, Muthoot Gold loan has asserted that lakhs of consumers across India, who availed of Gold loans during the lockdown are not eligible for this interest waiver. On a simple interest component of Rs 50,000 on a gold loan, Muthoot is charging Rs 1,00,000 as penalty and compound interest and forcing consumers to immediately pay up Rs 1,50,000 or forfeit their gold jewelry.

Dr Pranav Kabra of the CPIE India said: “Lakhs of Indians mortgaged their gold ornaments during the lockdown to survive. Others took gold loans to pay for children’s education or pay other EMIs. However, the gold loan companies are not giving consumers the benefit of the loan moratorium and interest waiver scheme. It is imperative that all the gold loans by private companies and well as jewelers must be brought under the ‘interest waiver’ scheme or the purpose of the entire exercise will be lost,” Kabra explained.

The Central government in its affidavit said it has directed that all lending institutions (described in clause 3 of the scheme) shall give effect to the scheme and credit the amount calculated as per the scheme in the respective accounts of borrowers by November 5, 2020. But many NBFCs claim that they are not covered under these schemes.

The govt affidavit was filed in the top court which is hearing a batch of pleas which have raised issues, including that of interest on interest’, concerning the loan moratorium period.

The govt affidavit said the amount shall be credited by lending institutions irrespective of whether such eligible borrowers have fully availed or partially availed or have not availed of the moratorium viz. deferment in payment of instalments as per the circulars dated March 27, 2020 and May 23, 2020 issued by RBI.

After crediting the said amount in the respective accounts of eligible borrowers, the lending institutions would claim reimbursement from the Central government through the nodal agency of State Bank of India as stipulated under the scheme, it said.

On October 14, the top court had observed that the Centre should implement “as soon as possible” the interest waiver on loans of up to ₹ 2 crore under the RBI’s moratorium scheme and had said that the common man’s Diwali is in the government’s hands.

The Centre had earlier told the court that going any further than the fiscal policy decisions already taken, such as waiver of compound interest charged on loans of up to ₹ 2 crore for moratorium period, may be “detrimental” to the overall economic scenario, the national economy and banks may not take “inevitable financial constraints”.

These affidavits were filed following the top court’s October 5 order asking them to place on record the KV Kamath committee recommendations on debt restructuring because of the COVID-19 related stress on various sectors as well as the notifications and circulars issued so far on loan moratorium.

It has also said that the top court’s interim order of September 4, restraining classification of accounts into non-performing accounts in terms of the directions issued by the RBI, may kindly be vacated with immediate effect.

The Kamath panel had made recommendations for 26 sectors that could be factored by lending institutions while finalizing loan resolution plans and had said that banks could adopt a graded approach based on the severity of the coronavirus pandemic on a sector.

Initially, the RBI on March 27 had issued the circular which allowed lending institutions to grant a moratorium on payment of instalments of term loans falling between March 1, 2020, and May 31,2020, due to the pandemic.

Later, the period of the moratorium was extended till August 31 this year and has been extended from time to time. The matter will now come up for final hearing in the Supreme Court on Dec 3.