3 Months Loan Moratorium - A Sigh of Relief!
One thing that is on everyone’s mind is the economic slowdown the Coronavirus pandemic is causing - delayed payments, business loss, crashing share market etc. If there is zero or less income, then how will anyone manage to pay the EMIs? Some respite in this hard time is a breather. RBI’s big move to tackle the Covid19 crisis is one such breather.
What does moratorium mean for you?
Moratorium period refers to the period of time during which you do not have to pay an EMI on the loan taken. This period is also known as EMI holiday. Usually, such breaks are offered to help individuals facing temporary financial difficulties to plan their finances better.
Normally, financial planners advise that one must check the terms and conditions of any EMI holiday period offered by the lender. This is because usually lenders charge simple interest instead of compounding interest during the moratorium period.
There have been requests from various stakeholders to defer the EMI payments as the country is going through a 21-day lockdown due to the spread of COVID-19. Today’s announcement came after the finance ministry wrote to the central bank suggesting a moratorium on EMI, interest and loan repayments for a few months.
To save the Indian economy and middle-class families, the Reserve Bank of India (RBI) today in a press conference announced a moratorium on term loans for up to three months. The governor in its statement said, "Moratorium on term loans - all commercial, regional rural, and NBFCs and small finance banks are being permitted to allow a 3-month moratorium on payment of instalments in respect of all term loans outstanding on 31 March 2020."
This would mean that individual’s EMI repayments of loans taken would not be deducted from their bank accounts till the above-mentioned time. The loan EMI payments will restart only once the time period expires.
Sigh of Relief
This big move by the RBI came as a relief to individuals, especially self-employed individuals, who are staring at income loss and would have found it difficult to service their loans such as car loans, home loans etc. If they had missed any EMI payment, they were risking adverse action by banks which could result in a hit on their credit score.
The rescheduling of loan repayments will not qualify as a default for the purposes of reporting to credit information companies (CICs) by the lending institutions. For borrowers, the rescheduling of loan repayments will not adversely impact their credit history.
As per Reserve Bank of India (RBI) rules, any default payments have to be recognised within 30 days and these accounts are to be classified as special mention accounts.
The decision to allow a moratorium of three months on loan repayment will be applicable to 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 and micro-finance institutions. Financial institutions can shift the repayment schedule and all subsequent due dates, also the tenor for such loans, by three months. The financial institution, however, has to take a board approval for putting in a policy of moratorium of three months on loan repayment.
Disclaimer: This update is subject to change upon further clarifications from private sector banks. Request you to please get in touch with your bank to know more.