MADURAI: A recent policy change introduced by the Reserve Bank of India regarding repayment of jewel loans has cast a new financial burden on the loanees and created windfall gain for loan sharks who charge even up to Rs 2,000 interest per lakh for two days (about 365% per year).
Hitherto, banks allowed customers to renew their jewel loans after 12 months by just paying their interest alone. It was not mandatory to repay the loan principal to renew their loans. However, since last October, banks have made it mandatory for customers to pay the entire loan amount with interest after 12 months to re-pledge the loan for next 12 months.
Moreover, the jewel loan once closed can be reopened only on the next working day. If customers fail to renew their loan as per this revised mandate, the banks can auction the jewels to recover their loan dues of principal and interest.
This has landed the customers in a new debt trap as loan sharks, across Tamil Nadu, have started lending money at exorbitant interest rates for a few days to help people renew their loan accounts by paying the principal and the interest accrued.
Aware of customers’ plight, but have to stick to RBI’s rules: Banker
S Syed, a customer from Madurai, told TNIE he took a gold loan for Rs 15 lakh from a nationalised bank by pledging 320g of gold at 9% interest.
For mandatory renewal of the loan after 12 months, Syed had to pay the bank Rs 16,70,000 for one day, which was not easy for him. “I found a middleman who was targeting gold loan customers. He gave the required amount but took Rs 1,000 as commission for Rs 1 lakh per day. To save my jewels from being auctioned, I had to pay him Rs 30,000 to get my Rs 15 lakh worth of jewellery. Eventually, I pledged the jewels that I got from the bank with a pawn broker at 24% interest, and paid the Rs 30,000 to the middle man. I underwent severe mental torture and financial loss because of this,” he said.
T Xavier Devasagayam, another customer, said, “Gold appraisers of banks are working as touts for these loan sharks to mobilise funds for repayment,” he added.
A bank official said, “Though we clearly know the plight of the customers, we have to strictly adhere to RBI’s rules. Customers can re-pledge the jewels on the same day on their family members’ names if they want. If customers had paid their loan interest every month, they don’t have to renew the loan,” he said.
Speaking to TNIE, All India Bank Employees Association district secretary M Kalidoss said the association has made a request to the RBI to relax the condition, considering the plight of the customers. Esan Murugasamy, founder of Tamilaga Vivasayigal Pathukappu Sangam, said, “Banks used to provide jewel loans of up to Rs 3 lakh at 33 paise interest to farmers as the amount of crop loan given in cooperative societies is not sufficient to meet the cost of crop cultivation.
Jewel loans are very useful to farmers. At the end of the year, farmers used to renew the loan by paying only the interest for that year. Now, the banks are refusing permission to do so, citing the RBI circular. Now farmers have to go to the banks and spend a few days to take the loan again and pay the full loan amount. This puts a heavy burden on the farmers. To arrange for the total sum to re-pledge the jewels, farmers are falling prey to money lenders.”
Meanwhile, on Wednesday, Congress MP Manickam Tagore wrote to letter to Finance Minister Nirmala, drawing her attention to the issue. “The recent policy changes introduced by the RBI regarding the repayment terms of jewel loans are likely to have a significant adverse impact on vulnerable sections of the society, including small businesses, farmers and low-income individuals,” the MP said in his letter.
“Given the critical nature of this issue, I urge you to kindly intervene and request the RBI to amend this rule. The previous system of interest-only repayment with the option for loan renewal offered much-needed flexibility to borrowers and was vital in ensuring continued access to emergency funds,” the MP said.
MP sends letter to FM
Congress MP Manickam Tagore, in a letter to Finance Minister Sitharaman, urged her to request RBI to amend rule. “The policy may impact farmers, low-income individuals and small businesses,” MP told the FM
(With inputs from M Saravanan @ Coimbatore)