The electronic cards will be provided only to those borrowers who have OD account of the nature of personal loans.
The Reserve Bank of India (RBI) has permitted banks to issue electronic cards to the borrowers having Overdraft accounts (OD) which are of the nature of personal loans. Similar to the debit cards issued to savings account holders, the OD account holders may now be provided with electronic cards to do any online and non-cash transactions. This means cash transactions will not be allowed, however, restriction on cash transaction will not apply to overdraft facility provided in Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts.
It has been made clear that such cards will be provided only to those borrowers who have OD account of the nature of personal loans but not specifically personal loan.
In a personal loan, the bank lends an amount for a certain period at a specific rate of interest based on which the EMI is calculated. The borrowers keep paying the EMI till the end of the loan period.
However, in a personal loan OD account also known as Credit Line loans, one pays interest rate only on the amount of loan used. For example, one has an OD limit of Rs 2 lakh from a bank but uses only Rs 25,000. In that case, the interest rate is payable only on Rs 25,000 and not on the entire amount. Interest is calculated on a daily basis and is payable every month.
In the OD loan, there is no end-use restrictions. “In a regular personal loan, you are supposed to confirm the nature of transaction before the sanctioning of loan can be done, but with overdraft accounts, you do not need to specify the nature of the transaction to get the loan sanctioned,” says Rachit Chawla, Founder & CEO, Finway. In the case of OD loans, the electronic card will be issued for a period until the end of the term and will have to be used only for domestic transactions.
The OD loans of the nature of personal loans are sanctioned by banks as Salary Overdraft, Home loan OD or even regular OD limit for anyone looking to have it.
There is a processing fee applicable on such OD loans and the interest rate may be same or slightly higher than personal loans. “New rules will help in generating the much-needed liquidity for the customers, and they’ll help them survive this difficult time of nationwide lockdown,” says Chawla. Those who are not sure about their financial position in the short term may opt for such loans rather than going in for a personal loan and pay interest till the end of the tenure.