The pandemic of COVID – 19 has taken over the nations worldwide and impacted the global economy significantly. With India going through a 21-day lockdown to contain the CORONA outbreak, businesses have come to standstill affecting liquidity at various levels. While the government is putting together necessary measures to extend aids, the EMI moratorium announcement made by the RBI earlier this week has come as a light of hope for many borrowers who face income loss and financial crunch due to lockdown and may not be able to keep up with their loan repayments.

“In respect of all term loans (including agricultural term loans, retail and crop loans), 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) (lending institutions) are permitted to grant a moratorium of three months on payment of all installments falling due between March 1, 2020, and May 31, 2020,” RBI said.

On 27th March 2020, the RBI announced that banks and lending institutions across the country can allow a three months moratorium on fixed-term loans and EMI payments to help borrowers sail through these times. This, however, is not an order but an option that lenders can provide to their retail borrowers.

What Is It?

A moratorium is an extension of 3 months on your regular EMI payment; during these 3 months, you do not have to pay your regular EMI once you get this relief from your bank. Also, it will not impact your credit score during these three months of non-payment. Both, the principal and the interest amount are covered under this. It is applicable to all the repayment outstanding between 1st – 31st March 2020.

A moratorium is not a waiver of payment. It is the deferment of payments for a period of 3 months. Lending institutions can choose to provide this facility to their borrowers. All types of terms loans like home loans, personal loans, vehicle loans, agricultural loans, etc. are covered under moratorium. A clarification from the central bank later also stated that credit card dues are also covered under this.

Is This A Relief?

In true sense, there’s no relief on your repayment liability as there’s no waiver on interest. It only gives you 3 months of extension time to pay your EMI. You also do not get reported as a defaulter to the rating agencies during this non-payment period, which otherwise affects your credit rating.

Another important aspect is that banks are not obligated to offer you moratorium. It’s a grant from RBI. Some banks may choose to extend this grant to their customers, and some may not.

The Grant In Motion

Lending institutions are yet to formalize the moratorium facility for their customers and arriving at a decision to offer the facility to all or those who seek this flexibility. Many public sector banks like SBI, PNB, BOB, etc. are gearing up to extend this grant by RBI to the customers automatically unless they inform the bank otherwise. On the other hand, most of the private banks and NBFCs are expecting borrowers to formally put in their requests for a moratorium which will be assessed case-to-case basis.

What You Should Do?

A moratorium must be availed only in exceptional situations as it furthers your EMI schedules and affects your interest payout and thereby increases the cost of your loan. So, if you can afford to pay, you must pay your EMI as per the schedule and not opt for a moratorium.

However, if you wish to avail the benefit of RBI moratorium, you can send a formal request for a moratorium to your bank by email, addressed to the Head of Loans with a cc to the CEO of the bank and the RBI. Your bank will assess your request based on your profile, transaction history, etc. Once the bank has accepted your request, your repayment schedule will shift by 3 months.

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