26 Mar 2020 | 5 min read
The Reserve Bank of India (RBI) today in a press conference announced that
“All Banks and NBFCs have been permitted to allow a moratorium of 3 months on the EMIs repayment of term loans outstanding on March 1, 2020.”
This decision taken by RBI will provide a big relief to the individuals, businesses facing a big economic challenge in the wake of the 21-day lockdown announced by the Government.
Note: RBI has allowed banks to implement a one-time restructuring of loans under stress due to the COVID-19 crisis. Borrowers can apply for further moratorium of two years if they are facing challenges to repay loans due to salary cuts and job losses.
Here is the answer to all questions related to the decision:
Q: What kind of loans does the moratorium cover?
A: RBI policy statement explicitly mentions term loans, which include home loans, personal loans, education loans, auto loans, and any loans which have fixed tenure. Consumer durable loans such as EMIs on Mobiles, Fridge, TV, etc. are also included under this cover.
Q: Which banks will allow this deferment to their customers?
A: Moratorium has been allowed on all term loans and all lending institutions including all commercial banks (regional banks, small finance banks, and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) can extend the moratorium.
Q: Will non-payment of EMIs have a negative impact on my credit score?
A: No, it will not. Availing a moratorium period will not lead to a downgrading of the borrower’s credit or affect the risk classification of the loan.
Q: Will there be a deduction of my upcoming EMI from the bank?
A: Currently, RBI has allowed banks to extend a moratorium. While the RBI has permitted banks to allow the moratorium, it depends on whether a particular bank chooses to extend these benefits to its customers or not. Individuals will have to speak with their respective banks to get clarity.
Q: Is this a waiver or deferment of EMIs?
A: No, this is not a waiver, but a temporary deferment. As per the recommendation of RBI the repayment schedule and all subsequent due dates as also the tenor for such loans may be shifted across the board by 3 months.
Q: Will borrowers have to pay all 3 EMIs at one go?
A: No, the borrowers will not have to pay the EMIs at one go. As stated by RBI, the tenor for such loans may be shifted across by 3 months.
Q: Are both principal and interest on loans, covered under moratorium?
A: Yes, it does. This is applicable on all loans outstanding as on March 1, 2020. If announced by your bank, you will be exempt from payment of your entire EMI including payment and interest for three months.
Q: Are credit card payments covered in the moratorium?
A: Yes, as stated by Money Control Credit Card dues are also covered by the moratorium.
Q: Does the moratorium cover loans taken on Credit Card?
A: Yes, Credit Card loans are also covered under the moratorium, as stated by Money Control.
Q: What has the RBI announced for businesses?
A: All working capital loans taken by businesses are allowed for a moratorium as stated by RBI. This is applicable in respect of all working capital facilities outstanding as on March 1, 2020. The interest will be paid after the expiry of the deferment period that has been accumulated. There will be no change of terms and conditions of loan agreements during this moratorium period and will not result in asset classification downgrade.
Q: Do I get an Interest Waiver?
A: The RBI has clarified, a moratorium will mean that the repayment schedule for such loans be shifted by three months. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium.
The interest due during the period of the moratorium will also get added to your outstanding amount and therefore will increase your burden when the moratorium gets over. Therefore, you should opt for it only if you are facing a liquidity crisis else it is better to continue with the EMIs.