Loan Moratorium: SC Asks Center To Implement Interest Waiver Scheme Till November 2

In the wake of the outbreak of COVID-19 and the financial setback that may occur to many, the Reserve Bank of India (RBI) announced some relief, in an effort to provide some relief to those struggling with a liquidity crisis, as a moratorium on term loans for three months on March 27, 2020, ends on May 31, 2020. On 22 May, the RBI extended this moratorium for another three months till 31 August 2020. Given that the worst time may not be over for many borrowers, many are in favor of extending the postponement until December 31, 2020. The Supreme Court has extended the stay order until 5 October 2020. 

The central bank aimed to give borrowers more time to approve the payment of EMIs, without classifying them as non-performing assets (NPAs).

Subsequently, the SC had stated on 3 September that the accounts which were not declared NPAs till 31 August would not be declared NPAs until further orders.

On September 10, 2020, the Supreme Court of India (SC) said that it would hear the case and pass an interim order. The apex court deferred its decision in the lack of a solid reply from the Center and the RBI. The apex court had asked the Center, Reserve Bank of India (RBI), and banks to file a definitive reply on their point, on the relaxation of interest charged during the moratorium period, keeping in view the recommendations of the KV Kamath Committee.

On October 5, 2020, the Center stated in its affidavit that small borrowers, who had taken loans up to ₹ 2 crores, would be relieved from paying compound interest during the six-month moratorium period, but this would not apply to the loans above ₹ 2 crores.

On October 14, RBI on moratorium told the Supreme Court that the Center had agreed to waive interest on loans up to ₹ 2 crores for six months of the moratorium announced in the wake of the COVID-19 pandemic. The SC directed the Center to implement this decision as soon as possible and come back with a proper action plan on 2 November.

Asked about the reason behind the delay in implementation of the decision by the SC bench, Mehta said, “November 15 is the outer limit for implementation, but the government will try to implement it even earlier than that.”

The Center in its affidavit on 2 October had informed the apex court of its decision to bear the ‘cost of interest’ on MSME loans and interest for personal loans up to ₹ 2 crores.

SC Seeks Centers’ Stand On Moratorium Extension

On August 26, 2020, a SC bench headed by Justice Ashok Bhushan directed the Center to clarify its stand on the interest rate issue. Advocate Vishal Tiwari moved the apex court in this regard, stating that suffering industries need more time to improve from financial stress and hence, consider the extension of the moratorium period till December 31, 2020, to SC needed. This applies to payments on monthly installments of all loans outstanding as of March 1, 2020. This also applies to home loans.

On September 1, 2020, the Supreme Court directed banks to refrain from classifying them as non-performing assets if these were standard loans and not more than 30 days until March 1, 2020. This can be a relief for hard-presses. In the next two months, the borrower until the SC decides. In addition, a loan moratorium can be offered to borrowers who were hit by the epidemic. On the other hand, it can spoil the health of banks, as estimates suggest that by June 30, 2020, bad loans of banks had reached 8.42 trillion.

Ensuring the court that the government’s decision would come into force before 15 November, Solicitor General Tushar Mehta told the Supreme Court that “banks will waive interest on interest and then will be compensated by the government and the calculation will have different modalities.”

Important Terms To Avail Loan Moratorium

Both corporate and retail borrowers will not come to a halt for the time being. The option of loan moratorium is being given to those who have actually been a hit. Following are the conditions:

• If you plan to take benefit of the moratorium facility, be prepared with strong evidence, such as a letter of termination or payout cut from your office, or your account of business losses, etc.
• The moratorium will be given only to those whose loans were not overdue for more than a month until March 1, 2020.
• The moratorium does not affect your credit score, although it will be reported to the credit bureau.

FAQs

Will my home loan EMI be deducted from my account next month?

A 3-month moratorium on repayment means that borrowers will not have to pay the loan EMI during the moratorium period. According to the RBI statement, availing the moratorium will not affect the credit rating of the borrower or the risk classification of the loan.

However, individual banks are required to allow the suspension of EMI. The borrower has to request the bank that his income has been affected by the COVID19 interruption. If you do not have specific approval from your lending bank, your EMI will be deducted from your bank account.

What if I have several loans going on?

The moratorium will be extended to all your term loans. However, you should check with your respective banks whether they want you to opt-in or opt-out of this facility.

Does the moratorium cover both principal and interest?

Yes, it does. However, it has to be approved by your bank, as mentioned in the previous answer.

Does this apply to those who are receiving full pay during the lockdown period?

The economic impact of COVID-19 can apply to all – both, salaried, as well as self-employed. For salaried people, the economic impact can be in the form of pay cuts, delays in salary payments, or even layoffs. Therefore, the RBI has taken this step in anticipation to ease the financial stress of many people. More information from individual banks is awaited. Eligibility criteria will be announced soon.

Are credit card payments covered under the moratorium?

No, only term loans are covered under the moratorium, and credit cards called revolving credits are not covered.

Will it affect my CIBIL score?

Obtaining the moratorium will not affect the credit rating of the borrower or the risk classification of the loan.

Are there any penalties?

No, during this tenure neither any penalty will be charged nor your credit score will be compromised.

Will the banks automatically apply the moratorium, or will the borrower have to contact the bank?

Individual banks will come with their own criteria. Experts say that since the RBI has used the words ‘and allowed’ and not directed it, most people may have to request their banks to give them a moratorium. The State Bank of India has already allowed all borrowers to take advantage of the moratorium, whether they need it or not. Clarity is awaited from other banks. RBI has asked banks to formulate policies approved by their board to provide relief to all eligible borrowers.

Which loans other than home loans are covered under moratorium?

All term loans that have a fixed tenure. This includes personal loans, car and bike loans, education loans, etc.

Is it a loan waiver (for three months) or a deferment?

Note that the RBI only agrees to the term loan transfers. There is no exemption or discount or concession. There are also charges of evasion.