Editor’s Note: Poornima had written a quick short post on SBI Kavach Personal Loan earlier. Below is a more in-depth article on this product from Deepesh Raghaw. Its rare that lenders offer good loan products to customers in times of distress/need. The more we know about such a good product, the better. If you still have any questions, please contact your local SBI branch.
Covid-19 has brought emotional and financial stress to many families. While it is impossible to fill the void due to loss of a loved one, it has not exactly been a smooth ride for those who have until now survived the crisis with their families intact. The treatment cost, if you (or a family member) had to get hospitalized, has been high. Not just that, many have suffered loss of job or loss of income due to the lockdown. The Reserve Bank has offered some relief to borrowers through loan moratorium and restructuring programs.
In addition, many public sector banks have introduced products specifically for Covid-19 related financial stress. We have discussed such products in an earlier post.
SBI has introduced a personal loan product for expenses related to Covid-19 treatment. You can apply for this loan if you (or a family member) have tested positive for Covid-19 on or after April 1, 2021. The loan proceeds can be used for the treatment of Covid-19. Therefore, as I understand, this product is for treatment of Covid-19 (and not for generic Covid-19 related financial stress).
Let’s find out more about the scheme.
SBI Kavach Personal Loan Scheme: Eligibility and Features
- You (or a family member) must have tested positive for Covid-19 on or after April 1, 2021. You will have to submit such test reports (RT-PCR test) to the bank.
- Available only to existing customers of the bank.
- Salaried as well as non-salaried and even pensioners can apply.
- You can apply by visiting the branch or through the SBI Yono app.
- The amount shall be disbursed into the bank account of the borrower.
Minimum and Maximum Loan Amount
- Minimum Loan Amount: Rs 25,000
- Maximum loan amount: Rs 5 lacs
These are just the minimum and maximum. The bank will consider your credit score and repayment ability before sanctioning the loan.
While the loan is specifically for Covid-19 treatment, I do not know if there is a check on the end usage of funds.
By the way, you can apply for this loan for reimbursement of costs (if you have been treated already). So, if you had to spend a lot of money for treatment of Covid and that is impacting your finances adversely, you can apply for the loan. As I understand, in reimbursement cases, the loan amount may be capped at the cost of treatment. You might have to produce medical bills to avail loan in such cases.
Loan Tenure
The loan tenure shall be 60 months.
You will get principal moratorium for the initial 3 months. Thus, you will NOT have to repay any principal in the first 3 months. The interest must still be paid in those 3 months.
The entire principal must be repaid in the remaining 57 months.
Rate of Interest and Other Charges
The interest rate for the loan shall be ~8.50% p.a. Of course, this is subject to change. Additionally, on SBI website, it is mentioned that the interest rate shall be 100 bps lower than similar unsecured product of SBI.
Humane outlook. We do not see this very often from banks. The generosity is extended to various charges too.
There is no processing fee. Processing fee also adds to the cost of loan, especially for short term loans.
There are no foreclosure charges either. No security or prepayment charges either. Good for the borrower. Usually, personal loans have heavy prepayment charges. These charges impose costs on you if you want to prematurely close the loan. Since such charges are not present in the loan, the borrowers get a lot of flexibility. If you have sufficient funds after a few months or a couple of years, you can close the loan and save on interest cost.
Things to Ponder Over
During the Covid crisis, many families have had to struggle to arrange finances for the treatment. And this highlights the importance of a robust contingency fund and an adequate health insurance coverage. And unfortunately, not everyone survived the virus onslaught. Just ask the surviving family members how important life insurance is.
When everything is fine, we tend to underappreciate the risks to our health and financial well-being. We tend to extrapolate our experiences into the future. If you have never been hospitalized, you will likely not see this as a significant risk. If you have never lost a job, you wouldn’t worry about retrenchment. And nobody expects to die. Thus, many of us do not appreciate the value insurance plans add to our financial lives.
Covid-19 related stress (treatment cost or financial stress due to loss of job, reduction in income due to the lockdown) has highlighted the chinks in the financial planning armour, if there was one.
Life hits us in unimaginable ways. While we can’t avoid such events, we can at least be prepared and take steps to reduce the impact on your finances. It is supercritical to get your insurance portfolio right.
Additional Reading: SBI Kavach Personal Loan Scheme: Product page on SBI website