The Reserve Bank of India vide circular RBI/2019-20/186 dated 27th  March, 2020 announced certain regulatory measures to mitigate the burden of of debt servicing brought about by disruptions on account of COVID-19 pandemic and to ensure the continuity of viable businesses.

RBI has announced to  grant a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020. The details of which are explained as under :

1) Which facilities/ loans are eligible for the benefit of this package ?

– All Term loans (including agricultural term loans, retail loans, crop loans and loans under Pool  Purchases ) in  all segments  irrespective of the segment and tenor of the term loan.

– All cash credit/overdraft are eligible to avail benefits under the package.

– Available to all such accounts which are standard assets as on 1st March, 2020

2) How the things will work under this package :

Deferred installments under this moratorium period will include following payments falling due on March 1, 2020 : a) Principle &/or Interest components b) Bullet repayments c)Equated monthly Installments d)Credit card dues.

– To  avoid unnecessary paperwork the facility has been extended across the board to all the   borrowers by extending repayment of term loan installments (includes interest) by 90 days.

– Rescheduling of principal can be done for a period of three months falling due between March 1, 2020 and May 31, 2020 , for example :

a) where the last installment of a term loan falls due for payment of on say 1st March 2020, it will become payable on 1st June 2020.

b) For EMI based term loans, it will be three EMIs falling due between 1st March 2020 and May 31st, 2020 and the tenor will be extended by three months and have to be repaid during the extended period

c) For other term loans, it will be all the installments and Interest falling due during the same period, irrespective of the tenor of payment i.e. monthly, quarterly, half yearly, annually, bullet payment etc.

d) For term loans, where the repayment has not commenced, the interest portion for three months alone needs to be calculated.

-The recovery of Interest applied to cash credit/overdraft on 31st March, 30th April and 31st May 2020 is being ‘deferred’. The entire interest must be recovered along with the interest being applied on 30th June 2020 and in cases, where monthly interest is not being applied, along with the next interest date.

3) Benefits due to this Regulatory package :

– No need to repay loans / pay EMIs  for 3 months – a big relief to people as earning has stopped due to the pandemic.

– In normal circumstances non payment or deferment adversely affects the borrower’s credit history and risk classification however due to this scheme there will be  no downgrading of borrower’s credit rating and risk classification  due to non payment during these 3 months.

– It will not affect existing terms and conditions of the loan.

– The rescheduling of  payments will not qualify as default for the purposes of supervisory reporting and  reporting to credit information companies (CICs) by the lending banks/institutions.

– EMIs will not automatically get deducted from your bank accounts if you make an application to the banks to avail the benefits of this package.

– In case of credit card dues, there is a requirement to pay minimum amount and if it is not paid the same gets reported to Credit Bureaus. In view of this package, the overdues in the credit card account do not get reported to the credit bureaus for a period of three months.

4) Disadvantage of the Package :

– The interest on the loans, though not mandatorily payable immediately and gets postponed by 3 months, continues to accrue on your account and results in higher cost.

Example – suppose your loan outstanding is Rs 100,000 and you are charged 12 percent rate of interest on your loans, then you are liable to pay Rs. 1,000 every month as interest. In case you opt not to service the interest every month, you are liable to pay interest at 12 percent p.a. and accordingly you will pay Rs. 3,030.10 at the end of 3rd month.

Similarly, in case the interest rate is 10 percent, you are required to pay Rs. 833 p.m. or Rs. 2,521 after three months.

 Also Borrowers should get clarity from their respective lender banks/ Institutions on this moratorium, how and when it will be offered to them and what will be the charges for the same.

  • However this package is a sign of relief for the middleclass and poor people who cannot afford to pay the loans in the current situation where all sources of income have stopped for them.
  • Till now many banks have officially declared procedures to “opt-in” for this package, to their customers via official announcements, tweets and the like. Out of which some of the banks are as under :

-State Bank of India, Punjab and Sindh Bank, IDBI Bank, Canara Bank, Andhra Bank, Indian Bank, Allahabad bank, Bank of India, Union Bank of India, UCO Bamk, Syndicate bank, Indian overseas Bank, Bank of Baroda, Central bank of India, Oriental bank of Commerce, Punjab National Bank, Corporation Bank, ICICI bank, etc

The article is based on the understanding and opinion of the author.

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