Covid-19: RBI relief on loan repayment: Should you avail of the 3-month moratorium?

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March 31, 2020 1:40 AM

Borrowers who opt for the moratorium on repayments will have to pay an additional interest charged on simple interest basis. Thus, those who have the capacity to repay should continue to make the payments regularly

It will also help borrowers to have liquidity, avoid the defaulter tag and give them the much-needed buffer time to understand their income status.It will also help borrowers to have liquidity, avoid the defaulter tag and give them the much-needed buffer time to understand their income status.

As India grapples with the coronavirus outbreak, the government has imposed a 21-day lockdown till April 14 to halt the spread of the pandemic. The Central and state governments and Reserve Bank of India (RBI) have announced relief measures to combat the economic fallout of the Covid-19 outbreak and alleviate the burden of debt servicing brought about by disruptions.

The three-month moratorium on payment of equated monthly instalments (EMI) announced by RBI will reduce the repayment pressure on the borrower and bring relief, as many individual borrowers may find it difficult to repay loans as their incomes and salaries get impacted. It will also help borrowers to have liquidity, avoid the defaulter tag and give them the much-needed buffer time to understand their income status.

EMI payouts
The RBI has announced a slew of measures to ease liquidity and provide relief to lenders and their borrowers. It has announced a moratorium of three months on payment of instalments on all term loans such as home loans, car loans, education loans, consumer durable loans and personal loans falling due between March 1 and
May 31, 2020. Even credit card dues are also part of the list. Most borrowers, however, would have paid the EMIs for the month of March as they are auto-debited from the bank account.

The moratorium applies to all term loans and working capital loans across all types of lenders—commercial banks including regional rural banks, small finance banks and local area banks, co-operative banks, micro-finance institutions and non-banking finance companies (NBFC) including housing finance companies (HFC). It is not a waiver, but only a shift in payment schedules. However, interest will continue to accrue on the outstanding portion of the term loans during the moratorium period.

The central bank has clarified that the rescheduling of payments, including interest, will not qualify as a default for the purposes of reporting to credit information companies by the lending institutions. The deferral will not adversely impact the credit history of the individual borrowers. Analysts say the three-month moratorium will not apply on demand loans such as gold loans.

All banks and NBFCs including HFCs will have to make changes and align repayment schedules, accounting changes and provisioning schedule and get board approval before implementing the three-month moratorium.

Simple interest
The central bank has underlined that lending institutions will frame board-approved polices for providing the reliefs to all eligible borrowers. Analysts say borrowers may have to get in touch with their lenders for opting for the moratorium and show that their income has been impacted. If a borrower does not apply for the moratorium, then the bank may continue to auto debit the EMI. Borrowers who will opt for the three-month moratorium will have to pay an additional interest that will be charged on a simple interest basis. The interest will get accrued during the moratorium period and borrowers will have to pay the accrued interest along with their monthly payments from June onwards.

Individual borrowers who have the capacity to repay their loan and interest should continue to make the payments regularly. Kunal Varma, chief business officer and co-founder, MoneyTap, says, borrowers who have the ability to pay such as salaried professionals whose incomes are still intact should compare their original cash flows with the revised repayment schedules and accrued interest payments, and then take a call on what makes the most sense for them. “While there is a deferment in EMIs for now, from June onwards, customers do need to be cognisant of their repayments and credit scores,” he says.

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