The extension of three-month moratorium on repayment of term loans by borrowers means that they would not have to pay the loan EMI instalments during the moratorium period.
The extension will provide relief to many individuals, especially the self-employed, as they would have found it difficult to service their loans such as car loans, home loans etc due to loss of income during the lockdown period from March 25, 2020. Missing an EMI payment would mean risking adverse action by banks which could have hit their credit score.
As per the previous RBI circular, clarified the following: Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period. Deferred instalments under the moratorium will include the following payments falling due from March 1, 2020 to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) Equated Monthly instalments; (iv) credit card dues. It is likely this will continue for the extension of three-month EMI moratorium.
Going by the Reserve Bank of India’s previous statement on the first three-month EMI moratorium, availing such a moratorium would also not lead to a down grading of the borrower’s credit rating or affect the risk classification of the loan. Further, availing the moratorium will not entail any change in the existing terms and conditions of the loan. If the existing terms and conditions of the loan contain conditions/charges related to a moratorium then these may apply depending on the moratorium policy adopted by the lending institution. As per the RBI, repayment of credit card dues can also be deferred under the moratorium mechanism.
Under normal circumstances if loan repayment is deferred then the borrower’s credit history and risk classification of the loan can be adversely impacted. However, in case of this moratorium the borrower’s credit rating will not be impacted in any way, as per the central bank previous statement.
As per Reserve Bank of India (RBI) rules, any default payments have to be recognised within 30 days and these accounts are to be classified as special mention accounts.
RBI in a press conference dated March 27, 2020 announced that all banks and NBFCs have been permitted to allow a moratorium of 3 months on repayment of term loans outstanding on March 1, 2020.
What does moratorium on loan mean?
Moratorium period refers to the period of time during which you do not have to pay an EMI on the loan taken. This period is also known as EMI holiday. Usually, such breaks are offered to help individuals facing temporary financial difficulties to plan their finances better.