Reserve Bank of India announced that the financial institutions could allow the moratorium on loans for a period of 3 months during the coronavirus fear in India. This article is about the moratorium on loans announced by RBI and how it will benefit the people of India. This article talks about all the aspects of the moratorium announced by RBI.
RBI decides to allow the lending organizations to give a moratorium on loan repayments
All the financial institutions have been permitted to allow a moratorium of three months on repayment of monthly installments in respect of all term loans outstanding as on March 1, 2020. The moratorium is being granted after the Prime Minister announced the 21 total lockdowns in India.
This RBI statement will bring ease during the lockdown, which means that the borrowers would not have to pay their EMI installments for the moratorium period.
- The repayment schedule will be shifted after the period of 3 months moratorium is finished. You will have to repay the installments after the three months of moratorium lapses.
- The moratorium is provided so that borrowers do not have an economic burden during COVID- 19, and it does not change the terms and conditions of loan agreements.
What does one mean by the term moratorium on loans?
Moratorium on loans is also known as the EMI holiday. It is the period in which banks allow the lender to stop paying the installments for some period amid financial problems.
What months do the moratorium covers?
The moratorium period will start from March 1, 2020, and will end on May 31, 2020.
RBI has also decided to ease the repo rates besides the moratorium
A higher reduction in repo rate will help the banks to lend more than keeping their excess funds with the RBI.
A little bit about repo rates and reverse repo rates:
- Repo rate is the rate at which the central bank, i.e., RBI lends money to the commercial banks in the event of any shortfall of funds.
- Reverse repo rate is the rate at which the central bank of the country borrows money from commercial banks. This rate also acts as a tool to check the money supply in the economy.
Which are the financial institutions covered for a moratorium?
The financial institutions that have been covered to allow moratorium by RBI are
- Commercial banks
- Co-operative banks
- All India Financial Institutions
- Commercial banks include regional banks and small finance banks.
Will the moratorium going to affect the credit history of the lender?
According to the RBI statement, the moratorium will not affect the credit rating of the borrower, which means that the rating agencies will not downgrade the rating of the borrower.
RBI also announced that the banks would also not term the borrowers’ loans as Non- Performing Asset during the moratorium period.
Under normal circumstances, if the borrower defaults in repaying the installments of the loan, then the rating of that individual is downgraded. Also, their accounts are termed as a Non-performing Asset. This will not happen in the period of moratorium.
What are the types of loans that are covered for a moratorium?
The moratorium covers all kinds of term loans. The moratorium facility can be availed by the following types of term loans
- Home loans
- Automobile loans
- Farm loans
- Retail loans
- Crop loans
What other kinds of dues are covered under the moratorium?
The Reserve Bank of India also announced that the moratorium would include the following payments
- A principal or interest components
- Bullet repayments
- Equated Monthly installments
- Credit card dues
Will the banks charge interest for the moratorium period?
The moratorium does not mean that the terms and conditions of the loans would be changed. This means that when the moratorium period would end, loan tenure will get readjusted and will also include interest repayment.
RBI has clarified that the borrowers who would not pay the installments during the moratorium period will have to pay the interest of this period too.
- RBI has also added that the decision to offer moratorium is up to the banks, and the banks have to get the approvals of their board before implementing the moratorium policy.
- There is no real waiver, but the banks are only postponing the burden to ease the economic burden on the lenders.
What should people do?
If you have enough money to pay your monthly installments, then don’t take the additional burden of accrued interest and pay your timely installments, because moratorium is not the waiver of the debt.
If you are having some financial difficulty in paying the installments during the lockdown, then you should ease yourself as you will get the temporary benefit of the moratorium with the cost of accrued interest.