The Reserve Bank of India surprised many by permitting banks to allow a moratorium of three months on payment of installments falling due between March 1, 2020 and May 31, 2020.
Q1. What is a moratorium on loans?
Simply put, a moratorium is an extension, not a waiver. The banking regulator has allowed all banks, including regional, small finance, local area, co-operative banks and all India financial institutions; along with non-banking financial services, which include housing finance companies and micro finance institutions; to offer a three month extension on payment of loans.
Q2: My EMI is due soon. Will the payment not be deducted from my account?
The RBI has only allowed banks to allow a moratorium. Individual banks will have to allow suspension of EMIs. The borrower will have to request the bank and show that his or her income has been impacted by the coronavirus disruption. This means that unless you have specific approval from your bank, your EMIs will still be deducted from your account.
Lending institutions shall frame board-approved policies for providing the abovementioned reliefs to all eligible borrowers,” the RBI later said in its guidelines.
Q3. Will the bank reschedule my EMIs?
Yes. The RBI said, “The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period.”
Q4: Will non-payment result in impact on my credit score?
Once relief has been granted by your bank, non-payment will not result in any impact on credit score.
Q5: I have taken a project loan for setting up a factory. Can I not pay my EMI?
The RBI guidelines specifically mention retail loans. So a business loan is unlikely to qualify.
Q6. Is this a waiver of EMIs or a deferment of EMIs?
This is not a waiver, but a deferment. You will have to pay the EMIs at a later as decided by the bank. The RBI has told banks to have board approved policies in place on moratorium/deferment.
Q7. Will you be charged a higher interest rate if you take this extension?
The banking regulator has clearly said that if you don’t pay your EMIs or credit card bills and choose to extend the loan by three months, you will end up paying interest cost for these three months on that loan.
Q8. Which banks can offer this deferment to their customers?
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) included.
Q9: Does this mean that I will have to pay all 3 EMIs at one go in June?
Unlikely, as the RBI’s statement suggests the tenor may be shifted. That is: the loan may end 3 months later than was originally slated. But more clarity is awaited on this.
Q10. How does this help banks?
With undue duress in the banking ecosystem at this time, it will help avoid retail non- perfoming assets (NPAs). Mostly, banks have been struggling with corporate NPAs but with a nation-wide lockdown, workers will struggle to pay their loans, significantly increasing the NPAs on the bank’s books.
Q11: Does the moratorium cover both principal and interest?
Yes. It does. If announced by your bank, you can forego payment of your entire EMI, including payment and interest.
Q12. I have taken a loan from a housing finance company. Can I also insist on switching to a repo-rate linked home loan?
No. The external benchmarking regime is applicable only to banks. However, the competition in the system is expected to ensure that housing finance companies pass on the benefits to you, in line with what banks offer.
Q13. What kind of loans does the moratorium cover?
The RBI policy statement explicitly mentions term loans, which includes home loans, personal loans, education loans, auto and any loans which have a fixed tenure. The also include consumer durable loans, such as EMIs on mobiles, fridge, TV etc
Q14. If I have taken a home, auto loan or education loan, will I be eligible for the moratorium?
Yes, as RBI has clarified that the permission to allow a three-month moratorium is applicable to all term loans. The modalities and procedures to seek the moratorium will be announced by banks.
Q15: Does the moratorium cover credit card payments?
Since credit cards are defined as revolving credit and not term loans, they are not covered under the moratorium.
Q16: I have taken a business loan. Can I not pay my EMI?
The moratorium has been allowed on retail loans.
Q17: Does the moratorium cover loans taken on credit cards?
The RBI guidelines do not address this specifically but since credit card dues are covered, it is likely that loans taken on credit card may also be covered.
Q18: What has the RBI announced for businesses?
The RBI has allowed deferment for interest payments for all working capital loans taken by businesses. The accumulated interest for the period will be paid after the expiry of the deferment period. Moratorium/deferment will not be treated as change in terms and conditions of loan agreements and will not result in asset classification downgrade.
Disclaimer: The Article Is Based On The Relevant Provisions And As Per The Information Existing At The Time Of The Preparation. In No Event I Shall Be Liable For Any Direct And Indirect Result From This Article. This Is Only A Knowledge Sharing Initiative.
The Author – CS Deepak Seth (Associate Partner at Helpinghands Professionals LLP) and can be reached at firstname.lastname@example.org or 9910248911.