Runaway inflation upsets family budgets, say Mr G. K. Sreenath and Ms S. Bindu, an earning couple in Trivandrum.
“The net result is that we have had to tighten the belt over the past year and a half to set apart an incremental 50 per cent every month to ensure that the show goes on,” Mr Sreenath told Business Line .
Mr Sreenath is an employee with a cooperative bank while Ms Bindu is a Government servant. They have two school-going children. They make for a level-headed couple, as thrifty and worldly-wise as they come. Discreet with financial planning, they think on their feet to plan life.
But they also epitomise the woes of a salaried family, troubled as they have been by escalating fuel and food prices feeding into inflationary expectations month after month to sustain the interest rate up-cycle.
In his early forties, Mr Sreenath has a housing loan of Rs 6 lakh contracted from a nationalised bank a few years ago at a floating rate of 9.25 per cent for 15 years. Only Rs 6 lakh in loan, as he already owned a prized landed property within two to three km of the central business district and some cash as part of his entitlement. Else, he would have needed at least Rs 16 lakh to build the reasonably well-appointed house of 2,000 sq.ft-plus that stands on the plot today.
He recalls that it was one of these festive periods that the nationalised bank had come out with the offer of 9.25 per cent, which was attractive then.
This rate, he says, was retained for two months before the bank resorted to the business that it knows best — floating the rate to sync with the frenzied revisions in interest rates.
To give credit to the bank, it wrote to Mr Sreenath every time the peg was revised.
A default of two months or more would automatically trigger an accounting mechanism in which the defaulted amount gets added on to the principal and attract a compounded rate the next time, as he learnt to his chagrin.
The relevant conditionalities, and such others, were conveniently tucked away into the fine print of the loan application form, something that he would find out later. But as is the want of the applicant in dire need of finances, Mr Sreenath couldn't care less about this while signing on the dotted line.
A case of being neatly trapped by the guiles of glib-talking staff at the counter of the nationalised bank vending home loans and offering ‘a festive season bonanza.' Mr Sreenath has also availed of finance to own a car but used sparingly, and a bike, which is the preferred mode of commuting within the city.
Mr Sreenath says he is now trying to cut costs at home, asking his kids to avoid splurging on eating out and feasting on bakery products and confectionaries. This is easier said than done, considering the tremendous ‘peer pressure' his kids are subjected to in school, he concedes. He still has to make-do with enhanced educational expenses, including transport to sustain the pick-ups and drops by the school bus. Thankfully, the whole family is covered under a Mediclaim policy, which should take of any contingencies on the health front, he said.
But Mr Sreenath says he has had enough of the ugly games that accredited hospitals play with insurance companies to inflate medical bills. Meanwhile, as the home loan rates began to pinch more and more, Ms Bindu went for the best way out possible; withdrawing Rs 3 lakh from the provident fund and effect a partial foreclosure of the loan.
A general trend, and worrisome at that, is the increasing aversion to save any more. There is hardly anything to save, he said, pointing out that asset-liability mismatch concerns make banks to bring deposit and lending rates to a ‘new normal.' This effectively neutralises any positive impact that inflation has on wages and salaries. People's inability to save will have far more deleterious impact on the country's economy than is generally divined, Mr Sreenath warns.