The lockdown announced by PM Modi for a period of 21 days to curb the spread of Covid-19 pandemic has brought the Indian businesses and market to a standstill! There have been requests from various stakeholders to suspend the EMI payments as the country is going through a 21-day lockdown.
A huge sigh of relief comes for all the Indian citizens!
Taking the shutdown into consideration, The Reserve Bank of India (RBI) on March 27, in a press conference announced a postponement of the term loans for up to 3 months for loans outstanding as on March 1, 2020.
Read to find out more…
What is the Fuss About?
The RBI in its statement said, “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) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by three months.”
The Central Bank Governor further said, “The moratorium/deferment is being provided specifically to enable the borrowers to tide over the economic fallout from COVID-19. Hence, the same will not be treated as change in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade. The lending institutions may accordingly put in place a Board approved policy in this regard.”
The news comes after the finance ministry wrote to the central bank suggesting a moratorium on EMI, interest and loan repayments for a few months.
As per RBI rules, any default payments have to be accepted within 30 days and these accounts are to be classified as special mention accounts.
What Exactly is Moratorium?
Moratorium period refers to the time period during which the customer does not have to pay an EMI on the loan taken from the lender institution. This period is also known as EMI holiday. Usually, such breaks are offered to help individuals facing temporary financial difficulties to plan their finances better.
The time period of the loans (where moratorium is availed) will be automatically increased by 3 months.
It is expected that all lenders will allow a suspension on loan repayments as mentioned above. This moratorium normally implies that individuals’ EMI repayments of loans taken would not be deducted from their bank accounts till the moratorium period is over. The loan EMI payments will restart only once the moratorium time period expires which is 3 months.
Availing such a moratorium would not lower the borrower’s credit rating or affect the risk classification of the loan. Both these parameters can get impacted in case of suspension of repayment in normal circumstances.
Who and How Does it Benefit?
This comes as a relief specifically for self-employed individuals or new start-up businesses, who are staring at income loss and would find it difficult to service their loans such as car loans, home loans etc.
If an EMI payment is missed these individuals or businesses are put at a risk for adverse action by banks which could result in an impact on their credit score.