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After the announcement of the 21-day total lockdown, due to the COVID-19 pandemic, the flurry of relief measures had been offered to the common people. These relief measures include offering to support the poor sections and the people who are forced to sit down inside their homes. But, ‘3-month moratorium on term loans’, among all the relief measures, has been the talking point. As per the RBI’s direction, all leading banks have disclosed their terms and conditions related to the deferment of loan instalments. Banks have clearly told the customers that users can choose between 3-month moratoriums and continue making payments. If a customer chooses not to pay the monthly instalments that are due after March 1, 2020, and up to May 31, 2020, no penalty will be charged. Moreover, deferring payments for 3 months won’t affect the credit score.    

Yet borrowers are concerned whether they should pick the 3-month moratorium or continue paying instalments. There is the anxiety that has gripped the borrowers. In fact, all leading banks have put the process of opting the 3-month moratorium and its consequences on their websites. It is true that the bank will neither charge any kind of late payment fee nor it will strike the borrower’s credit profile but they will have to pay interest on the existing loan once the moratorium will be over. Now, borrowers are confused about whether they should continue paying instalments or opt for the moratorium. If you are also in a state of turmoil, we will tell you how you can escape from it.

But before we dive into finding problems and solutions, let’s take a look at what leading banks are suggesting to their borrowers.

Leading Banks on 3-Month Moratorium

State Bank of India

SBI has made it clear that customers who want to pay EMIs, they need not do anything. But those who wish to opt for the 3-month moratorium, need to send an application to the bank via an email. The customers will also need to attach their NACH/ECS details with the EMI deferment application.

HDFC Bank

HDFC Bank has also said that customers who have adequate funds can continue paying their EMIs to avoid any kind of extra charges and extended loan tenure. The bank further said that as per the RBI’s direction bank won't ask any EMI up to May 31, 2020, but interest on the principal outstanding will accrue as per the agreed interest rate.

ICICI Bank

ICICI Bank has come out with features called ‘opt-in’ and ‘opt-out’. People who do not want to pay their EMIs between the 3-month moratoriums can choose ‘opt-in’. On the other hand, people who want to pay their EMIs as they were paying it before they can choose ‘opt-out’. The bank will send a link on the mobile phone so that customers can choose between two options.

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. 

The Impact of 3-Month Moratorium on Borrowers

The combined research reveals that banks are ready to pass on the moratorium benefits to the borrowers but it is for borrowers to decide whether they want to take it or not. It’s a fact that interest will accrue during the moratorium period but will it make a significant impact? Or is there any way to deal with it?

To know how it will impact your loan repayment, see the following table.

Case 1: Early In The Loan		Case 2: Middle Of The Loan
Current Principal Amount	Rs 40,00,000	Current Principal Amount	Rs 20,00,000
Remaining EMIs	240	Remaining EMIs	60
Rate Of Interest	9.00%	Rate Of Interest	9.00%
Existing EMI	Rs 35,989	Existing EMI	Rs 41,517
Accrued Interest During Moratorium	Rs 90,000	Accrued Interest During Moratorium	Rs 45,000
New Outstanding	Rs 40,90,000	New Outstanding	Rs 20,45,000
A: If Tenor Doesn’t Change		A: If Tenor Doesn’t Change
New EMI	Rs 36,799	New EMI	Rs 42,451
Increase In EMI	Rs 810	Increase In EMI	Rs 934
% Increase In EMI	2.25%	% Increase In EMI	2.25%
B: EMI Doesn’t Change		B: EMI Doesn’t Change
New Tenor	256	New Tenor	62
Increase In Tenor	16	Increase In Tenor	2

That table clearly shows if you opt for the 3-month moratorium there are two possibilities: Either you will have to increase the amount of EMIs to pay off the loan in the actual tenure or you will have to pay off the loan in extended tenure.

In either case, the repayment will prove costlier. Since the amount of accrued interest will also add to the existing principal outstanding balance, your loan will become costly.

Now, there are three options for you:

1. Extend the term by paying the agreed instalments each month.
2. Keep the term and increase the amount of monthly instalment.
3. Don’t opt for the moratorium and continue making payments.

HDFC Bank, though, offering another option as well – pay the accrued interest post moratorium at once and leave all the hassles. However, it is not clear whether other banks are also offering a similar kind of option. If you think that the latter option is worth trying make sure to contact your bank.

The Final Verdict

At this point in time, the banks are not hiding away anything from their customer. It is up to you to respond. The RBI, thus, making its intention very clear, is not defying the severe impact of COVID-19 on our economy. People may face a job loss or salary cuts. And this will only add to their hardships. The RBI wants to make sure that people have “sufficient funds in hands” to deal with such kind of shortcomings. So, there is no opting for a moratorium despite knowing that it will cost you, you can still opt for it. Once the pandemic crisis gets over or things start to attain normalcy, you can exercise options like balance transfer and pre-payment to mitigate the burden of the loan.