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RBI Announces 3-Month Moratorium on Loan EMI's: Should You Opt or Not?

Professor of Financial Economics and Part-time Value Investor, Transfin.
Apr 3, 2020 4:05 AM 5 min read

You might end up paying more if you are opting for the RBI EMI moratorium. RBI's moratorium may end up hurting corporate borrowers. GST collections for March fall below  ₹1L cr ($10bn). SoftBank pulls out of WeWork share buyout worth $3bn. Aurobindo Pharma’s calls of $1bn deal with Sandoz. HUL completes merger with GSK. Trump resists nationwide shutdown even as coronavirus cases in the US surge.




You might end up paying more if you are opting for the RBI EMI moratorium.

To Opt or Not to Opt?

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 the RBI announcement last week. 


However, one needs to bear in mind the fact that 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 nationwide lockdown.


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.


Here's an illustration of how the moratorium would work. [ToI]


Still unsure if you should avail the moratorium or not? Read this. [Financial Express]


RBI's moratorium may end up hurting corporate borrowers. 

What is This Mystery?

As per a Livemint report, RBI's move may end up hurting corporate customers who have taken working capital loans.


CS Shetty, Managing Director of State Bank of India, said that corporate customers who had availed of these loan will have to pay the four-month interest by the end of June, failing which they will be classified as Special Mention Account (SMA 1). SMA 1 are those accounts where repayments have been overdue for between 31 and 60 days.


If the three-month interest is allowed to be staggered over a period of 12 months like in the case of a funded interest term loan, then it will tantamount to restructuring. 


SBI is therefore exploring the option of initiating a dialogue with the Indian Banks' Association to allow restructuring of working capital loans in the case of businesses which have been affected. [Livemint]



GST collections for March fall below  ₹1L cr ($10bn). 

Meagre Earnings

Goods and Services Tax (GST) collections for the month of March stood at ₹97,597cr ($12,904m), lower than  ₹1.05L cr ($10bn) collected in February 2020. FYI, until February, GST collections crossed ₹1L cr ($10bn) for four consecutive months.


The slump in collections can be attributed to the fall in revenue from domestic and import transactions. Also, fewer taxpayers filed returns compared to previous months owing to the nationwide lockdown because of the coronavirus outbreak. [Moneycontrol]


Mark Your Deadlines

Technically, the new financial year has kicked in. However, as per the Finance Minister's announcement on March 24th, tax-related deadlines have been extended from March 31st to June 30th in the wake of the nationwide lockdown. Here's a beneficial list of tax-related and other deadlines to keep you up to speed during this lockdown. [Livemint]


India manufacturing PMI at four- month low of 51.8


The manufacturing Purchasing Managers’ Index (PMI) for India declined to 51.8 in March vs 54.5 in February as the nationwide lockdown threw economic activity out of gear. [Trading Economics]




SoftBank pulls out of WeWork share buyout worth $3bn.


Japanese tech conglomerate SoftBank has said that it has terminated a $3bn tender offer for additional WeWork shares agreed with shareholders last year.


SoftBank in a statement said that given its duty to its shareholders it could no longer proceed with the deal, citing criminal and civil probes into the co-working office space provider startup's failure to restructure a joint venture in China and the impact of the coronavirus pandemic.


The announcement also means that SoftBank is no longer obligated to proceed with a further $1.1bn in debt financing for WeWork. [Yahoo News]


In Search of Revenue

After garnering hundreds of millions of new users following demonetisation in 2016 and the aggressive push by the Indian Government towards a "Digital India", payments startups such as Paytm and MobiKwik are now switching to lending and leaning on to merchants in search of revenues. Click here to know how digital payment platforms are trying to make money. [TechCrunch]



Aurobindo Pharma’s calls of $1bn deal with Sandoz.

Sorry, This Is Not Working Anymore

Hyderabad-based generic drug maker Aurobindo Pharma has reported that it is calling off its proposed acquisition worth $1bn of the US dermatology business and three manufacturing units of Sandoz, a division of Swiss drug maker Novartis, after failing to obtain approval from the US Federal Trade Commission within anticipated timelines.


Hit Refresh

Aurobindo had entered into an agreement with Sandoz in September 2018 to acquire these businesses for an upfront payment of $900m and performance based payouts of $100m. [VCCircle]


HUL completes merger with GSK. 

Boost is the Secret of my Horlicks

Hindustan Unilever Ltd (HUL) has completed the merger of GlaxoSmithKline Consumer Healthcare Limited (GSKCH) with itself.


The announcement comes over a year after the mega-deal was first announced.


The Board of Directors of HUL also approved the acquisition of the Horlicks Brand for India from GSK for ₹3,045cr ($407m).


GSKCH’s brands such as Horlicks, Boost and Maltova will now be part of the company’s food and refreshments business falling under the nutrition category.


Under the deal, HUL will distribute GSK’s brands like Eno, Crocin, Sensodyne etc in India. [Hindu BusinessLine]



Trump resists nationwide shutdown even as coronavirus cases in the US surge.

Taking Too Long?

The US is now the new epicentre of the coronavirus pandemic, having reported the most number of confirmed positive cases at 200,000+ and deaths crossing 4,600. The White House’s own estimates suggest that 100,000 to 240,000 Americans could succumb to the coronavirus even if current social distancing guidelines are maintained.


However, the Trump administration has continued to resist calls to issue a nationwide lockdown, akin to what other countries such as Italy, Spain and India have already done, to stem the spread of the virus. Instead, Trump has said he wants to give individual state governors “flexibility” on whether to impose restrictions in their respective jurisdictions. [AP]


Oil prices rise on hopes of price war truce. 

Truce Ahead?

Global oil prices rose today after Trump said he expected Saudi Arabia and Russia to reach a deal soon to end their price war.


Saying he had spoken to both countries’ leaders, Trump said, "It's very bad for Russia, it's very bad for Saudi Arabia. I mean, it's very bad for both. I think they're going to make a deal." [BBC News]


Extra Crunch

What is the Saudi-Russian oil price war all about? Read this article to find out! [TRANSFIN.]


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