RBI’s EMI Moratorium: Payment & Moratorium Period

The RBI announced that banks and other lending entities, including non-banking finance companies and microfinance companies, are permitted to allow borrowers a three-month moratorium on payment of instalments of all term loans (which includes home loans, personal loans, and car loans) outstanding as of March 1, 2020. The moratorium is applicable to credit card dues also. The loan EMI payments (principal and interest) will restart only once the moratorium time period of 3 months expires. The accumulated interest for the period will be paid after the expiry of the deferment period.

The deferment of the EMI payments will not be considered as a default and not negatively impact the credit score of the borrowers.

Individual banks will have to frame policies allowing relief to customers. Whether it will cover all customers or only customers that request for relief will be decided by individual banks. The borrower will have to request the bank and show that his or her income has been impacted by the coronavirus disruption. This means that unless you have specific approval from your bank, your EMIs will still be deducted from your account.

Implications of The Moratorium for Home Loan Borrowers

The borrowers can defer the cash outflow to the future and thereby ease their current financial burden without affecting their credit score. But they should note that when the term of the loan is extended by three months, they will have to pay additional interest for the extended 3 months on their current outstanding loan amount.

Whether the borrowers have an option to pay this additional interest in one go or can be adjusted as additional EMI is something that needs to be clarified by banks.

If borrowers are not under any financial burden and can afford to pay the loan EMIs, they should continue to pay the instalments and not extend the loan term. By doing this they won’t have to pay the additional interest for an extended period.  

Considering that many of us are looking for further clarity on the moratorium with regard to how it impacts us, the loan tenure, additional liabilities, and the longer-term impact of the deferment, below are a few questions and answers to help us understand it better.

Will the Payment for My EMI be Auto-Debited from My Account?

The Reserve Bank of India (RBI) has stated that it has permitted select banks to extend a moratorium and extend the suspension period.

"Lending institutions shall frame board-approved policies for providing the above-mentioned reliefs to all eligible borrowers," the RBI said in its guidelines.

What it means is that individual banks will need to frame policies in the interest of customers. It is the prerogative of individual banks to offer relief to all customers or the select few who have requested for it.   

However, according to SBI chief Rajnish Kumar, all EMIs on term loans stand cancelled.

Will the Non-Payment Negatively Impact My Credit Score?

 If the bank chooses to grant the relief, the non-payment will not impact the credit score in any manner.

Can all Banks Offer this Postponement to their Customers?

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) are eligible to extend the moratorium.

Is this a Waiver of EMIs or a Deferment of EMIs?

It is important to note that this is a deferment and not a waiver. RBI has recommended that the rescheduling of this repayment along with all other subsequent ones can be shifted across the board by 3 months.

RBI has categorically mentioned that, "Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period."

Does that Mean that a customer will have to Pay all 3 EMIs at once after 3 Months?

That is not the case as the RBI's statement suggests the tenor may be shifted. It means that the loan may end 3 months later than was originally slated. But more clarity is awaited on this.

Does the Moratorium Cover both Principal and Interest?

It does. Customers will be excused from payment of their entire EMI, which includes the payment as well as the interest for three months. This will be applicable on all loans outstanding as of March 1, 2020.

Does the Moratorium Cover all Kinds of Loans or Some Specific ones?

Term loans, including agriculture term loans and crop loans besides retail loans are covered as per RBI policy statement.

Retail loans are mostly home loans, personal loans, education loans, automobile loans, and any loans that have a fixed tenure. They also include loans on durable items such as EMIs on mobiles, fridge, TV, etc.

Would the Moratorium Cover Credit Card Payments?

A: As credit cards are defined as revolving credit and not term loans, as per the RBI's operational guidelines credit card dues are also covered under this moratorium.

Are Loans taken on Credit Cards Covered Under this Moratorium?

It has not been specifically addressed by the RBI guidelines yet but since credit card dues are covered, it is quite likely that loans taken on credit card might also be covered.

If Someone has taken a Project Loan for Setting up a Business, can they not Pay their EMI?

The RBI guidelines have categorically mentioned retail loans. So, a business loan is not likely to be covered under this.

Has the RBI Announced Anything for Businesses?

The RBI has announced a postponement of interest payments for all working capital loans taken by businesses. This will be applicable in respect of all working capital facilities outstanding as of March 1, 2020. The accrued interest for the period will have to be paid post the deferment period of 3 months. It is important to note that this moratorium or deferment should not be understood as a change in terms and conditions of loan agreements and neither will it result in an asset classification downgrade.

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