Ride hiring is a common word for a person who avails the ride hailing services specially when one doesn’t want to drive or when one doesn’t know how to drive. However, did one know that more than 2-3 million vehicles are registered on the ride hailing platforms in India - of which a large number are driver owned and often backed by a car loan. So, why am I telling you this? Because recently the lockdown for 21 days was imposed and given that no one is allowed to travel unless for necessities, one would not hire a car.
Typically an car cab driver, would earn INR. 800-1000 per day for within city travel, so with a 21 day lockdown the cab driver would roughly lose 16,800-21,000 as income. So, why is there a problem, the problem stems when the cab driver has taken a loan. Typically these cab drivers repay loans and interest on a weekly basis and many of these loans are sourced from NBFCs/MFIs unlike banks (as the drivers may not possess a very high credit rating). So, when the driver does not repay the loan and interest on a weekly basis, the Non-Banking Financial Company (NBFC) /Micro Finance Institution (MFI) may take possession of the car (i.e. pledged to the NBFC or MFI as a collateral till loan repayment is complete).
Many ride hailing service platforms have been actively seeking a bailout for drivers in India, however partial respite was received when RBI on 27 March 2020 announced that all term Loans (including Agricultural, Retail, Crop Loans and loans under Pool Purchases) and Cash Credit/Overdraft can reschedule principal payments for a period of three months i.e. loan due for payment on 1st March becomes payable on 1st June. So, the borrower will not be considered as a defaulter in this circumstance.
Let us understand the mechanics of this 3 month bank loan relief. This relief is not free of cost. The interest on the loans, may not be payable immediately, however, payment getting postponed by 3 months, will entail interest accruing on your loan. To give you a perspective, suppose a cab driver has a loan outstanding worth INR.500,000 and you are charged 12% rate of interest on your car loan, then every month you are liable to pay INR. 5000 as interest. In case you opt not to service the interest for these 3 months, you are liable to pay interest at 12% p.a. and you will not only incur INR. 15,000 as interest plus INR. 150 rupees ( 1% each month on the unpaid interest portion of 5000 per month). This increases the interest portion to INR.15,150.
Now, this may be the story for a cab driver who has taken a bank loan to purchase a car. However, a driver who has taken a loan from a NBFC or MFI is not covered under this relief package and will have to service his weekly loan or probably lose his vehicle because of non-repayment. So, these cab drivers may not only lose their income temporarily during this 21 day lockdown but may also lose their source of income permanently. This brings us to the question that: Shouldn’t RBI also bring NBFCs and MFIs under the 3-month loan repayment relief window?.
-Dr. Jaslene Bawa, Assistant Professor – Finance