RBI Can Extend Moratorium On EMIs, Loan Repayment By 3 Months Extra: But Should You Delay EMIs?

The Reserve Bank of India (RBI) may extend the loan moratorium facility by another three months, in compliance with the extension of nationwide lockdown up to May 31, according to a report by SBI economists.

The National Disaster Management Authority (NDMA), the nodal department announced on Sunday that the lockdown 4.0 will be in action until May 31.

In a report titled ‘Will supply create its own Godot/Demand? Over to RBI now!’ Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI said that with the latest extension of lockdown, they’re expecting the RBI to extend the moratorium by another three months.

Before stepping on to the extension of this moratorium period, we believe that you must first understand the basis of this RBI moratorium period.

RBI 3 Months Moratorium

Taking the lockdown shutdown into consideration, The Reserve Bank of India (RBI) on March 27, in a press conference announced a moratorium of up to 3 months for loans outstanding as on March 1, 2020.

The three-month moratorium was on payment of all term loans due between March 1, 2020 and May 31, 2020. This was to help the borrowers from across the segments to tide over the crisis phase. 

If you’re deferring payment of an EMI of, say Rs 1,000, and the bank is charging interest at the rate of 10% on outstanding sum, you’ll have to pay Rs 25 extra on each of the three EMIs that has not been paid during the moratorium.

This additional interest may either be added up to all your future EMIs or your loan tenure could get extended at the same EMI level.

The relief is that in case you take the moratorium you will not get reported to CIBIL as a defaulter. In other circumstances, if you had trouble paying and asked for the same extension, you would be a “restructured loan” or worse, a “non performing asset” and that will hurt both the bank and you.

If you think you can avoid paying this month’s credit card bill, think again. Credit cards charge a horrendous 36%+ interest per year. A skipped credit card bill means such interest will accrue, even in the presence of a moratorium.

Extension of Moratorium by Another 3 Months?

With the lockdown period extended again, companies are still not in a position to resume their businesses yet. Hence, extension of the loan moratorium becomes necessary.

In a recent meeting with RBI, banks, NBFCs and MFIs too had made a case for extending the moratorium period beyond 31 May considering the difficulties in the operating environment for borrower firms. 

As per a report by rating agency, ICRA, about 328 companies have applied with banks for moratorium scheme to conserve capital.

The RBI needs to give operational flexibility to banks for a comprehensive restructuring of the existing loans and also a reclassification of 90-day norm, read the SBI report.

The report also added that the moratorium for three more months will imply that companies need not pay till August 31, 2020.

This means that the chances of companies being able to service their interest liabilities in September, is almost next to minimal.

Failing to do so, i.e. repaying the interest liabilities could lead the account to be classified as a NPA (non-performing assets) as per extant the RBI norms.