Clarification on RBI’s 3 Months Loan Moratorium, Should borrowers accept it ?

RBI’s announcement on deferring the EMI payments by 3 months has triggered a burst of queries from individuals as well as bankers on the type of loans that would be covered in the moratorium. There are many who had raised the queries pertaining to Credit Card dues. Others wanted to know whether the Equated Monthly Installment (EMI) payments have been waived off entirely for three months.

The storm of queries forced the RBI to issue a clarification. Below is a summary of what you should know :

What kind of lenders can issue the moratorium?

All lending institutions like Public Sector Banks, Private banks, Regional rural bank, Small finance bank and Local area bank, a co-operative bank, all-India financial institutions, and NBFC (including a housing finance companies like HDFC, LIC housing etc.), you can defer EMI payments for max three months.

What would be the EMI moratorium periods ? 

The moratorium will apply for loan installments falling between March 1, 2020, and May 31, 2020.

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Which types of the loan are classified

All types of term loan borrowers can avail of this facility. The terms loans include home loans, automobile loans, farm loans, retail loans, and crop loans. RBI has clarified that the installments will include credit card dues too.

Besides EMIs and credit card dues, principal and/or interest components of a loan and bullet repayments (lump-sum payment made for the entirety of an outstanding loan amount, usually at maturity) will come under the three-month deferment window.

This is interpreted that the staff loans are not considered under 3 Months moratorium but the onus is on the individual banks board to decide.

Whether Credit Card dues is included under 3 months Moratorium ?

RBI has clarified that the installments will include credit card dues too. Besides EMIs and credit card dues, principal and/or interest components of a loan and bullet repayments (lump-sum payment made for the entirety of an outstanding loan amount, usually at maturity) will come under the three-month deferment window.

Will this affect my credit history?

No, any loan repayments that are due over 90 days are classified as a non-performing asset (NPA). Your credit score maintained by credit rating institutions will then get affected. Now, if you don’t pay your EMIs in these three months, banks won’t term your account an NPA and CIBIL credit score will not be impacted.

Read more – How To Calculate 3 months Loan moratorium as per RBI Guidelines ?

Should we accept and go ahead with it ?

There is a catch in the extension of the moratorium. Remember, this is only a temporary deferral and not a waiver of your loan installments nor is it a payment holiday. This means that once the moratorium period ends, your loan tenure will get adjusted to your repayment, including the interest payment burden.

In other words, the EMI burden only gets postponed for three months and all other term and conditions will be same. 

 RBI clarified: “The repayment schedule for such loans as also the residual tenor will be shifted across the board by three months after the moratorium period.”

Will interest be charged on the EMI portion during the moratorium periods ?

Yes, it is to be noted that the interest amount shall continue to accrue on the outstanding portion of the term loans even during the moratorium period. Only that non-repayments in these three months will not amount to loan default.

What this means is that there is no real waiver on loan repayments but only postponing the burden. A borrower gets a breather for three months to arrange or accumulate money to pay banks once the relief period is over.

Also, although the RBI has permitted banks to offer moratorium to their borrowers, individual banks need to decide the modalities based on their rules. “Lending institutions shall frame board-approved polices for providing the above mentioned reliefs to all eligible borrowers,” the RBI said in the circular.

 What should borrowers need to do?

Experts advise that if you have enough cash flows to continue loan repayments, it is better to do that. This is because ultimately, the loan repayment burden, including the accrued interest component, will fall on you.

If you are facing cash flow issues due to the Covid-19 lock-down, you have three months of time to manage your payments without a lender breathing down your neck or your credit score getting affected.

Note : Contents of this article is compiled on the basis of the inputs provided by CNBC, Money control, ET and RBI’s publications. The above article is for information only and borrowers are advised to get the clarification from their lending institutions in this regard.

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