Cab Drivers With Car Loan Burdens From NBFC/ MFI Cannot Avail Loan Relief

Ride hiring is a common word for a person who avails the ride-hailing services especially when one does not want to drive or when one does not know how to drive. However, did one know that more than 2 to 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? The reason behind this question is because the recent lockdown for 21 days has restricted all sorts of transport. Unless it falls under a necessity, one would not hire a cab.

Typically a cab driver would earn Rs 800 to 1000 per day for within city travel, so with a 21-day lockdown, the cab driver would roughly lose Rs 16,800 to 21,000 as income. The problem stems when the cab driver has taken a loan. Typically these cab drivers repay loans and interest weekly and many of these loans are sourced from Non-Banking Financial Company (NBFC) or Micro Finance Institution (MFI) unlike banks (as the drivers may not possess a very high credit rating). So, when the driver does not repay the loan and interest weekly, the NBFC or MFI may take possession of the car (i.e. pledged to the NBFC or MFI as collateral till loan repayment is complete). 

Many ride-hailing service platforms have been actively seeking a bailout for drivers in India, however, the 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 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 three-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 three months, will entail interest accruing on your loan. To give you a perspective, suppose a cab driver has a loan outstanding worth Rs 5,00,000 and you are charged a 12 per cent rate of interest on your car loan, then every month you are liable to pay Rs 5,000 as interest. In case you opt not to service the interest for these three months, you are liable to pay interest at 12 per cent p.a. and you will not only incur Rs 15,000 as interest plus Rs 150 rupees ( 1 per cent each month on the unpaid interest portion of 5000 per month). This increases the interest portion to Rs 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 an 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, should not RBI also bring NBFCs and MFIs under the three-month loan repayment relief window?

The author is the Assistant Professor (Finance and Accounting), FLAME University