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3 months moratorium on repayment of EMIs for borrowers: Explained

RBI has asked all the lending institutions to provide a three-month moratorium on EMI repayments on all term loans. This means that the loan borrowers would not have to pay the EMI instalments of the loan during this period and the credit score and risk classification of the loan will not be affected.
Mar 27, 2020 14:54 IST
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Shaktikanta Das, RBI Governor
Shaktikanta Das, RBI Governor

Shaktikanta Das, Governor of Reserve Bank of India (RBI) has asked all the lending institutions to provide a three-month moratorium on EMI repayments on all term loans. This announcement is done to ease the pressure of EMIs on the borrowers amidst the COVID-19 pandemic. The RBI Governor has further allowed the banks to deferment interest on working capital loans for the next three months. This means that the loan borrowers would not have to pay the EMI instalments of the loan during this period i.e. moratorium period and will be applicable on all the term loans outstanding on March 1, 2020. 

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RBI Governor further stated that availing such a moratorium would also not affect the borrower’s credit rating or the risk classification of the loan. It would also not entail any financial penalties or increase in the interest rate or charges beyond the existing terms and conditions of the loan. However, the three-months moratorium does not apply on credit card dues. Therefore, individuals must clear all the credit card dues on time to avoid a negative impact on their credit ratings. 

It must be noted that under normal circumstances if the repayment of the loan is delayed, it affects the borrower's credit history and the risk classification of the loan. However, as per the announcement by the RBI Governor, the three-months moratorium will not affect the borrower’s credit rating and the risk classification of the loan.

If the lending institutions allow a three-month moratorium on loan repayments then individuals' EMI repayments of loans would not be deducted from their respective bank accounts till the moratorium period gets over. The loan EMI payments will resume once the three-months period expires.

Key  points to note: 

1- As per the announcement by RBI Governor, there’s a deferment and the loan duration is not extended. This means they the accumulated interest will have to be paid after the moratorium expires (though at a lower rate as RBI has reduced Repo Rate and the banks will pass this on to the borrowers). 

2- Do not forget to pay all your Credit Card EMIs as they are NOT included in the scheme as per RBI Governor’s statement. 

3- As RBI has announced, the banks are permitted to offer the three-months moratorium and nowhere it is mentioned that it is mandatory for the lending institutions. This means that the borrowers can only avail of the benefit of the three-months moratorium if the bank decides to pass on this benefit to the borrowers. 

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To ease the economic distress in the wake of coronavirus, the RBI Governor in a press conference today has announced the above-mentioned reliefs. However, it must be noted that RBI has permitted all lending institutions to offer a three-month moratorium on term loans but the implementation of the moratorium policy solely rests with the lending institutions. Thus, it is advised to enquire your lending institution about the policy and how it will be offered.

 

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