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How RBI’s 3-month moratorium on loan EMIs will work for borrowers

All banks including housing finance companies have been allowed to allow a moratorium of 3 months on EMI installments in respect of loans outstanding as on March 1, 2020.

SBI home loan, interest rate, emi, borrowers, mclr, rbi, repo rate
Since the reduction in repo rate, SBIs home loan rate for salaried individual is the range of 7.20 per cent to 7.55 per cent depending on the loan amount.

Moratorium on Loans: Amid the Coronavirus outbreak and its impact on the livelihood of millions of individuals – both salaried and self-employed – the Reserve Bank of India’s announcement today has given a big relief to the term loan borrowers. All commercial banks, including housing finance companies, have been allowed to give a moratorium of 3 months on the monthly installments in respect of all term loans outstanding as on March 1, 2020.

“The 3-month loan moratorium will come as a big relief for borrowers who might have been struggling with their repayments in these times of extraordinary economic challenges and uncertain financial future,” says Adhil Shetty, CEO,

More clarity is awaited from the RBI as to how the moratorium will work for the borrowers as well as the banks. However, here is what most industry experts have to say regarding the home loan moratorium.

How moratorium may work

In simple terms, it means, the borrower who has taken an SBI home loan or a loan from any other bank or housing finance company like LIC Housing Finance, will not be required to pay the 3 months’ EMIs. The repayment schedule and all subsequent due dates of the EMIs will, therefore, be shifted by three months.

This, however, does not mean that one doesn’t have to pay the 3-month EMIs in the future. It will be more like a 3-month EMI holiday. Also, one need not pay the 3-month EMIs as a lump sum after the moratorium ends. The tenure will get extended. For instance, if you have 120 months left on your loan, it will be 123 months now, with the next 3 months without any EMI payment.

It is, however, suggested to get in touch with your banker for better clarity.

Do I have to approach the bank?

Borrowers need not approach the bank or HFC to apply for a moratorium. “Borrowers won’t have to declare about their wish to avail moratorium as it will be system generated. If somebody pays, it will be like principal repayment,” informs Sameer Narang, Chief Economist, Bank of Baroda. It also means one need not have to cancel any ECS or standing instructions given to banks.

But, what if you are in a position to pay the EMIs as and when they become due over the next 3 months? Should you also opt for a moratorium? “If you can afford to repay your loan EMIs, you should try to set aside that amount even if you’re not required to pay them during the moratorium unless doing so will adversely impact other pressing financial requirements. This would ensure speedy lowering of the loan burden once the moratorium ends,” says Shetty.

Watch: What is Repo Linked Lending Rate, Home Loan? RLLR meaning, comparison vs MCLR

Is your EMI becoming due?

The banks, on their part, will have to immediately act on this new step of the moratorium as for some borrowers, the EMI deduction could be happening anytime before March 31, 2020. “Banks will probably need to take out an internal policy in this regard, as the policy states. They need to have board approval to sort of push it back to three months, so some discussion at the board level or sub-committee of the board, however, those banks operate. Given the sensitivity and importance of the issue, one expects that banks will convene a board meeting in whatever form by today or tomorrow,” says Karthik Srinivasan, Senior Vice President and Group Head, Financial sector Ratings, ICRA.

Impact on credit score

If a borrower fails to pay EMIs on time, there is a negative impact on one’s credit score and credit profile. However, in this specially announced moratorium by the RBI, there will not be any such impact. “Non-payment of loan EMIs during the moratorium will not impact your credit score, as mentioned by the RBI governor. As such, you should stay on top of it by checking your credit score regularly during the moratorium period,” says Shetty.

(With inputs from Samrat Sharma and Kshitij Bhargava)

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