The Economic Times
English EditionEnglish Editionहिन्दी
| E-Paper
Search
+

    RBI extends EMI moratorium for another three months on term loans. Here's what it means for borrowers

    Synopsis

    The current EMI moratorium on all the term loans is ending on August 31, 2020. Previously the EMI moratorium was given for three months i.e. between March and May 2020.

    Loan moratorium extended, banks' group exposure limit raised, borrowing rules for states relaxed: Key RBI regulatory announcements
    ET Calculator Banner
    The Reserve Bank of India (RBI) announced an extension of the moratorium on term loan EMIs by another three months, i.e. till August 31, 2020 in a press conference dated May 22, 2020. The earlier three-month moratorium on the loan EMIs was ending on May 31, 2020. This makes it a total of six months of moratorium on loan equated monthly instalments (EMIs) starting from March 1, 2020 to August 31, 2020. This measure was taken by the central bank to provide some relief against the covid-induced financial crisis.

    The extension of the three-month EMI moratorium on repayment of term loans means that borrowers will not have to pay their loan EMI instalments during such period as prescribed by the RBI.

    The extension will provide relief to many, especially those who are self-employed, as they would have found it difficult to service their loans like car loans, home loans etc. due to loss or shortage of income during the nationwide lockdown period from March 25, 2020. Missing an EMI payment would mean risking adverse action by banks which can adversely impact one's credit score.

    As per the Statement on Developmental and Regulatory policy of the central bank, "On March 27, 2020, the RBI permitted all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (referred to hereafter as “lending institutions”) to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020. In view of the extension of the lockdown and continuing disruptions on account of COVID-19, it has been decided to permit lending institutions to extend the moratorium on term loan instalments by another three months, i.e., from June 1, 2020 to August 31, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by another three months."

    The RBI has further clarified that such treatment will not lead to any changes in the terms and conditions of the loan agreements, which will remain the same as announced in and for the previous moratorium extension period.

    As per the policy statement, "As the moratorium/deferment is being provided specifically to enable borrowers to tide over COVID-19 disruptions, the same will not be treated as changes in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade. As earlier, the rescheduling of payments on account of the moratorium/deferment will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions in pursuance of the announcements made today do not adversely impact the credit history of the borrowers. In respect of all accounts for which lending institutions decide to grant moratorium/deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall also exclude the extended moratorium/deferment period. Consequently, there would be an asset classification standstill for all such accounts during the 5 moratorium/deferment period from March 1, 2020 to August 31, 2020. Thereafter, the normal ageing norms shall apply. NBFCs, which are required to comply with Indian Accounting Standards (IndAS), may follow the guidelines duly approved by their Boards and advisories of the Institute of Chartered Accountants of India (ICAI) in recognition of impairments. Thus, NBFCs have flexibility under the prescribed accounting standards to consider such relief to their borrowers."

    Under the normal circumstances, if loan repayment is deferred, the borrower's credit history and risk classification of the loan can be adversely affected. However, in case of this moratorium, the borrower's credit rating will not be impacted in any way, should he/she opt for it, as per the central bank statement.

    According to RBI's rules, any default payments have to be recognised within 30 days and these accounts are to be classified as special mention accounts.

    As per the debt servicing relief announced by RBI, interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period. Deferred instalments under the moratorium will include the following payments falling due from March 1, 2020 to August 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) Equated Monthly instalments; (iv) credit card dues. It is likely these will continue for the extended period of the EMI moratorium.

    Naveen Kukreja, CEO and Co-Founder, Paisabazaar.com says, "The extension of loan moratorium will provide relief to those facing difficulties in servicing their loans due to cashflow and income disruptions. The deferment of loan repayments will neither incur penal charges nor impact their credit score. However, those availing the extended loan moratorium will continue to incur interest cost on their outstanding loan amount during the moratorium period. This will increase their overall interest cost. Hence, those with sufficient liquidity to service their existing loans should continue to make repayments as per their original repayment schedule. Remember that the accrued interest on availing the loan moratorium can be significantly higher in case big ticket loans like home loans and loan against property with long residual tenure and sizeable outstanding loan amount."

    RBI in a press conference dated March 27, 2020 announced that all banks, housing finance companies (HFCs) and NBFCs have been permitted to allow a moratorium of 3 months on repayment of term loans outstanding on March 1, 2020.

    What does moratorium on loan mean?
    Moratorium period refers to the period of time during which you do not have to pay an EMI on the loan taken. This period is also known as EMI holiday. Usually, such breaks are offered to help individuals facing temporary financial difficulties to plan their finances better.

    Click here to download ET Online’s guide to everything personal finance in the times of Covid-19
    ( Originally published on May 22, 2020 )
    (Click here to know how to save on taxes for the financial year 2020-21.)

    Download The Economic Times News App to get Daily Market Updates & Live Business News.

    193 Comments on this Story

    BNAVEEN GOUD44 days ago
    Please give me two years moratorium sir
    Manju Sharma75 days ago
    No job, no business,lack of finance and harassment of recovery agents are putting lots and lots of pressure.
    We are going to pay but we need time.this harrassing is letting us nowhere.
    There should be a solution.
    We have been homeless also since lockdown. What should we do. How can we pay our emis
    Prasad116 days ago
    I had also applied for Moratorium from June to August 31. But ICICI didnt not say that they rejected my application till Moratorium period ended. later on recovery agents started to yell at me, abuse me and started to ask me to pay the due for moratorium period. I share screen shots of acknowledgement of submission of application. Nothing worked out. ICICI didn't respond to any my application, mail. they even didnt answer to my question on why they have not communicated me that my application for moratorium rejected
    The Economic Times