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RBI's 3-Month Moratorium on Loan EMI's: Frequently Asked Questions and Answers

Professor of Financial Economics and Part-time Value Investor, Transfin.
Apr 2, 2020 9:48 AM 4 min read
Editorial

The RBI Governor of India Shaktikanta Das last week, in a major relief to the common citizen amidst the slowing Indian economy, particularity hit by the outbreak of the coronavirus pandemic, allowed borrowers to not pay any equated monthly installments (EMIs) for any loans until June 30th, subject to individual bank policy. Read official RBI Press Release here.

 

Towards this effect, some PSU banks, including SBI, PNB, Bank of Baroda, Union Bank of India, IDBI and others, have offered loan EMI moratoriums to their customers.

 

Following Suit

India’s largest private sector lender by assets HDFC Bank also announced moratorium on loan EMIs

 

Following suit, ICICI Bank also allowed its customers to defer EMI payments on term loans (a loan from a bank for a specific amount that has a specified repayment schedule and a fixed/floating interest rate) till May 31st 2020.

 

Here's an attempt to answer some common questions related to the EMI moratorium announced by the RBI. 

 

 

What Does RBI's Covid-19 Regulatory Package Entail?

The RBI last week announced a three-month moratorium on all term loans outstanding as on March 1st, 2020, as well as on working capital facilities, subject to individual bank policy.

 

Availing such a moratorium would also not lead to a down grading of the borrower's credit rating or affect the risk classification of the loan. Further, availing the moratorium will not entail any change in the existing terms and conditions of the loan.

 

However, it was also stated that "interest shall continue to accrue on the outstanding portion of the term loans during the moratorium."

 

Which types of loans are covered under the RBI EMI moratorium notification and who can grant these?

All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all instalments in respect of all term loans (including agricultural term loans, retail and crop loans falling due between March 1st, 2020 and May 31st, 2020.

 

Is the rescheduling of term loans applicable only for the principal amount? Does it also include the interest?

Rescheduling of principal can be done for a period of three months falling due between March 1st, 2020 and May 31st, 2020.

 

For EMI-based term loans, it will be three EMIs falling due between March 1st, 2020 and May 31st, 2020 and the tenor will be extended by three months and have to be repaid during the extended period.

 

For other term loans, it will be all the installments and Interest falling due during the same period, irrespective of the tenor of payment, that is, monthly, quarterly, half yearly, annually, bullet payment etc for term loans, where the repayment has not commenced, the interest portion for three months alone needs to be reckoned.

 

What happens if the extended tenor of term loan goes beyond the maximum period stipulated for a product or as stipulated in the loan policy?

The provision can be extended to all stipulated term loans without the need for seeking deviations or approvals.

 

Will the deferment of payment affect my credit history or credit score?

The RBI has assured all customers that the rescheduling of payments will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries.

 

What about my credit card dues?

The dues payable on credit cards will also get a three month grace period, but the interest cost of this deferment could well be astronomical. Normally, one can defer a payment by paying 5% of the due amount while the unpaid amount is carried forward to the next billing cycle and charged 2-4% interest. Under the relief package, if you don’t pay for three months and the bank decides to charge as it normally does, the cumulative interest could be at more than 6-12%. 

 

You should check from your card provider to arrive at interest payable.

 

Should I opt for the RBI EMI moratorium?

The moratorium is not a waiver of any kind. It is simply a deferment of the payment to provide some relief to borrowers facing liquidity issues in the wake of the Covid-19 pandemic and the subsequent 21-day lockdown put in place to break the chain of infection. Therefore, the interest will continue to accrue for the time period of the moratorium. Also, the interest due during the period of moratorium will also get added to your outstanding amount and therefore will increase one's burden when the moratorium will get over and you will start paying your EMIs. Therefore, one should opt for it only if one is facing a liquidity crisis. 

FIN.

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