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Customers fret as public, private banks differ on moratorium

While the customers get the benefit for now, banks will recover the cost post the moratorium is over, resulting in higher EMIs.Premium
While the customers get the benefit for now, banks will recover the cost post the moratorium is over, resulting in higher EMIs.

  • While customers of some banks must opt in for the relief, others will be automatically eligible for it
  • Banks will recover the cost once the moratorium is over, resulting in higher EMIs or increasing the tenure if the person can’t afford higher EMIs

NEW DELHI/MUMBAI : The Reserve Bank of India’s (RBI’s) three-month loan repayment moratorium will not work the same way for all—while customers of some banks must opt in for the relief, others will be automatically eligible for it.

Following the RBI directive to banks on 27 March, different banks have announced their policies. State Bank of India, the country’s biggest lender, tweeted: “In terms of RBI Covid-19 regulatory package, SBI has initiated steps to defer the installments and interest/EMIs on term loans falling due between 1 March 2020 to 31 May 2020 and extended the repayment period by three months."

Other state-run banks such as Bank of Baroda, Punjab National bank, IDBI Bank and Canara Bank too have informed their customers about the moratorium. Most banks have come out with detailed FAQs for clarity.

SBI and Canara Bank have chosen the ‘opt-in’ route, where those who want to avail of the moratorium will have to inform the bank. IDBI Bank has chosen the ‘opt-out’ route, where those who don’t want the moratorium will have to email the bank by 3 April.

SBI has told customers who have given standing instructions to their banks that if they don’t want to avail the moratorium, no action is required from their end as the monthly EMI will be deducted from their accounts. However, those who want to avail the moratorium will have to send an application to the bank through an email.

“Moratorium will be automatic and across the board. Even if a customer doesn’t have money in his account, he will not be penalised as the moratorium will apply. I’d say that those having enough cash flows should not look at availing this options as the costs are huge. But then again it depends on urgency of cash. Lot of people may not get salary," C.S. Shetty, managing director at SBI, said in a conference call with reporters.

For all banks, if a person avails of the moratorium, the loan tenure will get extended by three months over the original repayment tenure. For example, if a loan was to mature on 1 March 2025, it will now mature on 1 June 2025. However, some of these customers may have already paid their March instalments; so, in effect, the loan tenure will only get extended by two months. But some banks may give a breather. For instance, Bank of Baroda has said the bank will refund the March instalment.

In line with the RBI notification, SBI informed its customers that interest will continue to accrue over the moratorium period, increasing the overall cost. For example, an SBI borrower opting for the moratorium with a 30 lakh loan and a remaining maturity of 15 years, will need to pay a net additional interest of around 2.34 lakh, or equal to eight EMIs. SBI currently charges 7.20% for a 30 lakh loan.

Mrin Agarwal, financial educator and director, Finsafe India Pvt. Ltd, said this appears like a “super-expensive" option. “What it looks like is, the interest for the period of moratorium is getting added to the principal outstanding and an interest is charged on the principal outstanding as well as interest for the period of moratorium for the remaining tenure. If you are not able to pay your EMI, then you should dip into your emergency fund and pay the EMI. I don’t think a person should opt for it until and unless he or she is in a dire need of cash," Agarwal added.

While customers get immediate relief, banks will recover the cost once the moratorium is over, resulting in higher EMIs or increasing the tenure if the person can’t afford higher EMIs. Banks are likely to give the option to borrower to increase EMI or tenure of loan. Borrowers will have to contact their banks for the revised repayment schedule, which will show the revised EMIs.

Private sector banks such as ICICI Bank and HDFC Bank too have chosen the ‘opt-in’ route. Borrowers must inform their banks through email, text messages or by calling a designated number. ICICI Bank, for instance, said if the customer has sufficient balance on the EMI date and not opted for moratorium, it will deduct the EMI from their bank account.

Non-banking financial company Bajaj Finance Ltd too has offered the opt-in route. However, these customers need to show a consistent loan repayment track record, with not more than two EMIs due in any of their loans. Additionally, new loans sanctioned and availed after 1 March 2020 will not be eligible for moratorium.

There will be no impact on the credit score of individuals who do not pay their instalment for three months under the moratorium, the RBI has said.

The RBI announcement had sparked confusion among borrowers and credit card holders as many repayments were falling due in the following days. With 1 April being a bank holiday due to annual closing of accounts, borrowers were a harried lot.

On Wednesday, the Indian Banks’ Association released FAQs regarding the moratorium, after getting it vetted by the finance ministry. This was followed by banks, housing finance companies and non-banks communicating to their customers.

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