Lenders firming up ‘opt-in’ policy for implementation of moratorium

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Published: March 31, 2020 7:27:47 AM

IDBI Bank has sent a communication to its customers that they were being offered a moratorium.

moratorium, implementation of moratorium, RBI, NBFC, IDBI bank, financial institutions, EMI, Aditya Birla group, HDFC bank, ICICI Bank, LIC housing finance, Covid-19 caseNo separate requests are required from customers to opt in.

After the Reserve Bank of India (RBI) allowed banks and non-banks to offer their borrowers a three-month breather on repayments, lenders brainstormed over how the policy can be implemented. FE has learned that some of the public sector banks may offer a sweeping moratorium to all retail borrowers for three months, while NBFCs and private banks may put in place a mechanism wherein a customer may ‘opt-in’ for the moratorium.

IDBI Bank has sent a communication to its customers that they were being offered a moratorium. No separate requests are required from customers to opt in. Also, during this period of lockdown, most financial institutions are working with skeletal staff and an “opt in” mechanism may be hard to implement. However, those borrowers who wish to continue to pay can do so. The loan tenor has been extended by IDBI Bank without any specific conditions and change in interest rates.

Some others are looking at restricting the moratorium on equated monthly instalments (EMIs) to those retail borrowers whose cash flows have actually taken a hit as a result of the lockdown in the form of salary cuts. At the same time, an ‘opt-in’ mechanism puts the onus of availing the benefit on the borrower, which could entail a higher interest rate.

Salaried employees most hurt by the lockdown belong to the aviation and hospitality sectors. Some large conglomerates such as Aditya Birla group, Vedanta Group and Essar Group have earlier assured their employees of no job losses or pay cuts in the wake of the Covid-19 scare. Hence, lenders are banking on the finances of a large section of their borrowers remaining unaffected by the lockdown.

The largest players in the home loan market – State Bank of India (SBI), Housing Development Finance Corporation (HDFC), ICICI Bank and LIC Housing Finance – are known to have held meetings with each other over the last two days to figure out a mechanism to extend the moratorium. At the same time, these institutions have also reached out to their circle-level executives for inputs on how best to implement the scheme.

SBI is understood to be planning a blanket moratorium for retail accounts that have been showing signs of stress in the January-March quarter. Other institutions are in the process of putting in place the nuts and bolts of the process through which they will approach their borrowers. ICICI Bank is looking at a mailer and SMS-based process to allow their borrowers to apply for the moratorium. It is also expected to put in place a list of frequently asked questions (FAQs) on the subject on its website.

Meanwhile, the industry has already started to communicate to borrowers that they would be better off not availing the moratorium. On Sunday, credit-card payment app Cred said in a note to its users: “CRED recommends that you continue paying your total due amount (or as much as possible) within the due date to avoid interest charges @ 36 – 42% compounding annual interest rate, if you can.”

HFCs, too, may take to imposing higher interest rates on borrowers who choose to defer EMI payments. “What needs to be communicated is that it is a postponement for people facing temporary liquidity issues and the cost of postponement will have to be borne by borrowers who seek the benefit of postponement. It’s not a waiver in any way,” an official with a large HFC said.

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