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RBI Moratorium: Important Things To Know

By Finserv MARKETS - Apr 10,2020
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RBI Moratorium

Following closely on the heels of India’s Finance Minister Nirmala Sitharaman’s announcement of a relief package for COVID-19 pandemic, the country’s central bank also announced some relief measures to offer some financial respite to borrowers. As a part of this package, the Reserve Bank of India (RBI) announced that there would be an EMI moratorium for a period of 3 months, extending from March 1, 2020 to May 31, 2020.

If you’ve borrowed any loan from banks or other lending institutions, you’re probably wondering whether you qualify for this EMI moratorium. To clear the air and help you understand more about this moratorium period and the EMI holiday, here are some important things to keep in mind about the RBI’s moratorium for COVID-19.

The kind of relief the EMI moratorium offers

The 3-month moratorium is valid for all instalments due on loans that were outstanding as on March 1, 2020. As per the RBI’s announcement, borrowers who have availed term loans from lenders need not pay their EMIs during the moratorium period. The moratorium is also applicable on working capital loans availed by business enterprises. This move is bound to offer a great deal of relief to individuals and businesses who have borrowed funds to finance various personal or professional requirements.

The types of loans that are covered by the RBI’s moratorium for COVID-19

All term loans and working capital facilities are covered by the RBI’s moratorium for COVID-19. Term loans include various types of retail loans such as personal loans, home loans, two-wheeler and four-wheeler loans, agricultural loans, and even crop loans. Working capital facilities include funds sanctioned to businesses in the form of cash credit or overdraft. These loans are specifically given to help businesses meet their short-term operational requirements.

The period over which the moratorium is in place 

The moratorium is applicable for a three-month period on EMIs associated with all loans that were outstanding on March 1, 2020. Effectively, the duration specified by the central bank ranges from March 1, 2020 to May 31, 2020. During this period, the EMIs that are due on your loans can be deferred for a period of three months.

The kinds of instalments that are permitted to be deferred

The notification issued by the RBI explained that the following kinds of instalments, due during the moratorium period, are covered by the moratorium.

  • Principal and interest components
  • Equated Monthly Instalments (EMIs)
  • Bullet repayments
  • Credit card dues

The categories of lenders that are allowed to offer the EMI moratorium

As per the RBI’s announcement, all banks and financial institutions have been directed to provide this EMI holiday. This also includes non-banking finance companies, housing finance companies, regional rural banks, local area banks, and small finance banks. To put things in perspective, if you’ve availed a term loan, say a personal loan, you will be eligible for the EMI moratorium.

The effect of deferring EMI payments on the credit scores of the borrowers

The deferment of EMI payments on term loans will not affect the credit scores of borrowers. The central bank has expressly stated that the payments deferred as part of the moratorium are not to be treated as a default by lending institutions for the purpose of reporting to Credit Information Companies (CICs). So, this essentially means that unlike in cases where there’s re-aging of debt, your credit scores will not be adversely impacted by the EMI moratorium, should you choose to defer your payments for the three months specified as the moratorium period.

Re-aging of debt essentially means that borrowers agree to enter into a program wherein they resume making payments on a delinquent loan. Because of this, an old and overdue debt is converted into a more recent liability. This, in turn, takes prominence in your credit report and brings your credit score down. By contrast, the RBI’s moratorium for COVID-19 is only a temporary deferment of your liability, and it does not affect your credit profile in any way.

The effect of the deferment on the NPA levels of lenders

The loans where the repayments are deferred will, in no way, change the NPA levels of lenders, since they’re not to be considered as defaults in repayments. The asset classification of the working capital facilities and term loans for which relief has been granted needs to be determined as per revised due dates and repayment schedules after the RBI’s moratorium period comes to an end.

The RBI’s moratorium for COVID-19 isn’t effective on all eligible loans by default

The directive issued by the RBI merely permits eligible banks and lenders to defer the EMI payments due for a period of 3 months. This effectively means that onus to choose to implement this moratorium is on the banks. It’s advisable to contact your bank or your lender to find out if they’re offering the moratorium.

This does not mean that your EMI is waived off

Bear in mind that the EMI moratorium merely means that your EMI repayment schedule will be shifted across the board by 3 months. This is not a re-aging of your debt, nor does it absolve you of your liability entirely; it only defers it. The RBI’s moratorium is not a concession that waives your debt, and it does not lead to any changes in the terms and conditions of your loan.

It’s also important to note that during this 3-month moratorium period, extending up to May 31, 2020, interest shall continue to accrue on the amount of loan that’s outstanding. Once the moratorium period comes to an end, you will be required to pay the accrued interest on the first due date that falls after May 31, 2020. It’s best to contact your lender to know whether this amount will be charged as a single payment, or whether it shall be payable in instalments.

All in all, with regard to term loans like personal loans, two-wheeler loans, and home loans as well, borrowers can benefit from the EMI moratorium. So, if you’ve borrowed any of these loans, you can rest assured that during these testing times, you need not worry about the added burden of EMI payments.

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