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RBI (Photo: Mint)
RBI (Photo: Mint)

Six things to know about RBI's moratorium on EMI

  • Though the moratorium covers all payments due between 1 March and 31 May, many borrowers might have paid their instalment for the month of March

In a relief to borrowers who could be facing liquidity issues in paying their equated monthly installments (EMI) amid the nationwide lockdown, the Reserve Bank of India (RBI) on Friday allowed banks and other financial institutions to provide a moratorium of three months to all term loan borrowers.

The RBI has also instructed credit information companies to ensure that the credit score of the borrowers does not get impacted due to moratorium. Mint explains what it means for borrowers:

What type of loans will benefit from the moratorium?

As per the RBI circular, banks and other financial institutions are permitted to provide a moratorium of three months for all term loan installments which are due for payment between 1 March and 31 May. Term loans will include all kinds of retail loans such as vehicle loan, home loan, and personal loan, agricultural term loans as well as crop loans. The central bank has clarified that credit card dues will also be eligible for the moratorium. The moratorium will be provided for both interest as well as principal repayment, which means the moratorium is on your entire EMI.

Do I get an interest waiver?

Moratorium basically means you don't have to pay your EMIs for that time period and no penal interest will be charged. It is not a concession of any kind and is simply a deferment of the payment to provide some relief to borrowers facing liquidity issues. The RBI has clarified moratorium will mean that the repayment schedule for such loans be shifted by three months. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.

The RBI has also stated that the moratorium is provided to help borrowers tide over the liquidity issues due to the pandemic. This is not a concession and will not lead to any change in the terms and conditions of the loan.

So how do I benefit?

There will not be an impact on your credit history if you avail the moratorium facility. Also, unlike salaried people, there are many people who don’t have a regular cash flow. Some of the salaried people might face pay cuts or delayed payments or layoffs due to the lockdown. Therefore the moratorium will benefit if you are facing liquidity as you can pay your bank or financial institution after 31 May.

Borrowers need to understand though the moratorium covers all payments due between 1 March and 31 May. Many borrowers might have paid their instalment for the month of March as most people give the ECS mandate for EMIs for the first week of the month. So, if you have already paid the EMIs or credit card dues for the month of March, you will get the benefit of only two months. “RBI has recommended a moratorium for three months starting March till May but most retail borrowers would have already paid their EMIs. It should ideally have been for April-June period," said Adhil Shetty, CEO, Bankbazaar.com, an online marketplace for financial products.

Do I have to pay my EMI next month?

It is not that you will not have to pay EMIs or credit cards due between 1 March and 31 May even if you would want to. It will not be automatic. Although most people await clarity in this regard, banks will most likely give people the option of moratorium. Those who want to continue paying the EMI or credit card dues will be able to do so. “We are still seeking clarity on this. Each lender will develop its own regimen around the moratorium implementation," said Raj Khosla, MD, Mymoneymantra.com, a financial services platform. RBI has asked banks to prepare board approved policies to provide relief to all eligible borrowers.

“RBI has rightly put the onus on the lenders to decide the terms of the moratorium, however it’s going to be fairly complex for every lender to come out with their own eligibility criteria. Hence one solution being evaluated is a 3 month moratorium to all retail borrowers with an option of opting out of the moratorium if one wishes so," said Shetty.

Who all can offer moratorium?

The RBI has asked all banks, financial institutions including housing finance companies, non-banking finance companies, small finance banks, regional rural banks, small finance banks, local area banks to provide moratorium. So, if you have a home loan from a bank such as SBI or housing finance company such as HDFC, both would provide you a moratorium.

Should I go for it?

As explained earlier, moratorium is not a waiver of any kind. So, your 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 your burden when the moratorium will get over and you will start paying your EMIs. Therefore, you should opt for it only if you are facing a liquidity crisis else it will be better if you continue paying your EMIs regularly. “It’s important to remember that since this is a moratorium and not a waiver interest will continue to be charged during the moratorium and therefore people who can afford to pay their EMIs should stick to the schedule," said Shetty.

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