Availing the EMI moratorium is an optional one and borrowers have to ask the lenders to put a pause on loan repayment during the moratorium period.
As the nationwide lockdown to contain the spread of highly contagious Novel Coronavirus COVID-19 has hit the economy and livelihood hard, the Reserve Bank of India (RBI) had initially declared a 3-month moratorium on loan repayment to provide relief to borrowers, which has been extended for 3 more months.
However, availing the EMI moratorium is an optional one and borrowers have to ask the lenders to put a pause on loan repayment during the moratorium period.
Although the moratorium would provide the much-needed relief to those persons whose incomes have stopped due to the lockdown, making it difficult for them to pay back the loan through equated monthly installments (EMIs), but the drawback of postponing the EMIs is that the interest will continue to accumulate even during the moratorium period.
The accumulated interest will create an additional burden on future installments, resulting in higher EMI payouts or increase in EMI period.
According to the State Bank of India (SBI), for a home loan of Rs 30 lakh with a remaining maturity of 15 years, the net additional interest on availing a 3-month moratorium would be approximately Rs 2.34 lakh, which is equal to additional 8 EMIs.
However, the interest accumulation would be more during the initial period of loan repayment, compared to the later period, when the interest component in EMI becomes negligible.
The Mudra Shishu Loan is aimed at providing financial support to the micro businesses/units with a maximum loan amount of Rs 50,000 and maximum repayment period of 5 years.
As the small businesses under Mudra have been disrupted the most due to the loackdown, it has also impacted their capacity to pay EMIs.
So, to reduce the additional interest burden after availing the moratorium and to help the crisis-hit small businesses survive, Finance Minister Nirmala Sitharaman has announced the government’s decision to provide interest subvention of 2 per cent for prompt payees for a period of 12 months.
The current portfolio of Mudra Shishu Loan is around Rs 1.62 lakh crore and the estimated 2 per cent interest subvention would provide a relief of Rs 1,500 crore to the borrowers.