What Does The New RBI Moratorium Mean For Borrowers?

With the global breakout of the COVID-19 pandemic, the Reserve Bank of India has taken an important decision with the objective to reduce the financial burden of debt servicing. As per the RBI order, all lending institutions have been permitted to give a moratorium or an EMI holiday to their borrowers for loan repayments and credit card dues. The moratorium is for installments and card dues in the period between March 1, 2020, and May 31, 2020. It has been given to mitigating income/ business loss to individuals or businesses. In this post, we’ll try to provide clarity on the barrage of questions that borrowers have regarding the three-month moratorium on loans and credit card dues. 

Am I eligible for the benefits under the moratorium period?

If you have taken a term loan or have a cash credit or overdraft, then you are eligible. This includes: 

• Agricultural Term loans, 
• Retail loans, 
• Crop loans and 
• Koans under Pool Purchases. 

All accounts which are defined as Standard Assets as on 1st March 2020 are eligible. There is no need to do any special paperwork to avail of this facility. Your term loan installments’ repayment including the interest due will be extended by 90 days. For example, if your loan is repayable in 60 installments and is scheduled for maturity on 1st March 2022, then the new maturity date will be 1st June 2022. 

Can I reschedule payments for all term loans? Will it affect my credit score?

Yes, you may reschedule payments irrespective of the loan segment and the tenor of your term loans. However, remember that moratorium is not a waiver. No, your credit score will not be affected if you opt-in.

What is rescheduled, the principal or the interest too?

You can reschedule your principal repayment due in the period 1st March to 1st June 2020. Let’s say that you had an installment due on 3rd March 2020. The payment will now be due on 3rd June 2020. If you have taken an EMI based term loan, then the repayment tenor will be extended by 3 months. For other term loans, the repayment period will be extended for installment and the interest due in the moratorium period, irrespective of the repayment tenor i.e. Monthly, Quarterly, Bullet Payment, Half Yearly, Annually, etc. If the repayment of your term loan has not commenced yet, then the interest portion for three months will also be reckoned. Please do note – interest due in 3 EMIs will still accrue. It’s only the payment that will be delayed.

Can the term loan go beyond the maximum period stipulated for a Product?

Yes, as per the new guidelines, a term loan can be extended beyond the period stipulated for the product and that given as per the loan policy. The interest in the Working Capital facilities will be treated as a deferred payment. 

Are there any costs of availing of the benefits of the moratorium?

Yes, opting for a moratorium has a cost. If you have 36 outstanding terms, then 1 extra EMI has to be paid; for 60 outstanding terms 2 more EMIs; for 120 outstanding terms, 5 extra EMIs, for 180 outstanding, 8 extra EMIs and for 240 outstanding terms, 15 extra EMIs have to be paid. The interest payment is deferred and not waived off. It is only postponed to 3 months and would continue to accrue on your account. 

Should I avail of the moratorium benefit?

If you can honor your obligations, then you may want to skip this moratorium. It is beneficial primarily for those who are bearing the brunt of the economic slowdown and are facing a serious money crunch. After all, paying dues is the best practice and opting-in should be a last-ditch decision. More so, not all banks may fulfill RBI’s suggestion. These are ultimately only guidelines.

Will my credit card dues be deferred?

RBI has given relief for credit card payments also. Your overdue will not be reported to the credit bureaus for a period of three months. No penal interest rate will be charged if the card issuer gives you an option for the moratorium. However, the card issuer will charge interest on the unpaid amount. Do check the interest payable with your Card provider before opting in, since those can be fairly high and is one of the reasons you shouldn’t get too friendly with credit cards.

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