Everything You Need To Know About RBI’s Three Month Home Loans Moratorium

Highlights

• RBI permitted banks and financial institutions to provide a moratorium up to 3-months for all payments (both principal & interest) due between 1st March to 30th May 2020
• Customers availing the remedy measures will have to shoulder the higher cost
• Interest will continue to accrue on the outstanding portion during the 3-month moratorium period
• Availing such a moratorium would also not lead to a downgrading of the borrower’s credit rating or affect the risk classification of the loan
• Availing the moratorium will not require any adjustment in the existing terms and conditions of the loan
• Repayment of credit card dues can also be admitted under the RBI’s moratorium mechanism
• As per the Reserve Bank of India (RBI) data, over Rs 13 lakh crore of housing loans and Rs 2 lakh crore of auto loans were outstanding as of January end.

The ongoing Coronavirus (COVID-19) pandemic and the nation-wide 21-days lockdown have not only created a worldwide health emergency but has also stressed the financial condition of individuals and businesses equally.

While the central and state governments have announced various relief measures, the Reserve Bank of India (RBI) has also announced relief packages for customers who are struggling with repaying loans of any kind, to support their financial difficulties in repaying the debts.

RBI Governor Shaktikanta Das announced on March 27, 2020, vide circular RBI/2019-20/186 that all leading institutions are permitted to provide a moratorium up to 3-months for all payments (both principal & interest) due between 1st March to 30th May 2020. This applies to all types of Home Loans as well as Credit Card dues.

Besides retail borrowers, micro, small and medium enterprises, and large companies will also benefit from the RBI’s relaxation of loan repayment.

Customers welcomed the Reserve Bank of India (RBI) move saying that it will help millions of people with bank dues during the COVID-19 pandemic.

The banking regulator, however, didn’t order banks to give such support. It gave the choice to banks to make a decision on whether they are in a position to extend the measure for customers.

It will simply depend on the bank’s financial health to choose it or ignore it. But the country’s leading public sector bank State Bank of India (SBI) has announced that it will honor RBI’s request.

Frequently Asked Questions On Moratorium

• What Is A Moratorium?

The moratorium is not a new concept in India. It is the act of postponing the payment of monthly loan installments (Pre EMI/EMI) for a limited period. The interest at the applicable interest rate shall continue to accrue on the outstanding portion of the loan during the moratorium period.

• What Is Meant By A 3-Months Moratorium On Repayment Of Term Loans For Borrowers?

The 3-month moratorium on repayment of term loans by borrowers means that they would not have to pay the loan EMI installments during the moratorium period. Going by the Reserve Bank of India (RBI) statement. 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 chosen by the lending institution.

• Will The Moratorium Be Applicable To Both Principal And Interest Repayment?

Yes, the moratorium will be applicable to both principal & interest components. It means moratorium is applicable to loans in which customers are paying either EMIs or Pre EMIs.

The interest, at the applicable interest rate, shall continue to accrue on the outstanding portion of the loan during the moratorium period.

• What Will Be The Applicable Period Of The Moratorium?

The applicable term of the moratorium is 3 months. The lenders are permitted to grant moratorium for all installments due between 1st March to 31st May 2020.

• Will The Interest Continue To Charge During The Moratorium Period?

Yes, interest will charge on your loan during the moratorium period. As a result either the outstanding term of the loan can be extended or the EMI increased to repay the loan along with the accrued interest. The interest during the moratorium period will be capitalized and depending on the customer’s option to increase the EMI or retain the EMI, the residual term will be increased or retained to amortize the principal together with the accrued interest.

• Will I Be Charged An Interest Penalty During The Moratorium Period?

No, but, the moratorium should not be assumed as a waiver and therefore interest will continue to charge on the outstanding principal during the moratorium period.

• Is The Moratorium Only For Nationalized Banks Or All Banks? Will It Be Applicable To Co-operative Banks Too?

All lending institutions such as 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, have been permitted to allow the moratorium.

• Do I have an option to continue paying EMIs/Pre EMIs During The Moratorium Period?

A moratorium is an option provided by banks to its customers who are facing monetary issues or a liquidity crisis during this novel situation. However, customers who wish to move with the payment of their EMIs/Pre EMIs as per their original schedule are free to do so.

• Will The Moratorium Option Impact The Credit Score Of The Customer?

The delay of the EMI/ Pre EMI payments during the moratorium period will not affect the customer’s credit score. During the dependency of the moratorium period, non-receipt of EMIs/Pre EMIs will not be analyzed and listed as default to the several credit bureaus.

• How To Choose A Moratorium Option?

You can choose a moratorium option by either visiting your bank’s website or go through the link that is sent to you by your bank through email and SMS. This is to allow you to decide your option through the digital mode.

• What Happens If I Don’t Choose Any Option?

If you don’t choose any option i.e. neither opt-in or opt-out, then your bank does not change your account. The default choice is, thus, opt-out.

• If I Have Multiple Loans Do I Have The Option To Apply For Each Separately?

Yes, you will have the option to select the moratorium for each account separately.

• Will I Be Charged A High-interest Rate During The Moratorium Period?

No, the interest will be charged as per the applicable interest rate on your loan.

• What If My EMI Was Due On March 27, 2020?

You can check with your respective bank regarding this as most of the banks are refunding. It may consider refunding EMI for March if it was debited post-march 27th, 2020.

• Is The Moratorium Option Available For NRI Borrowers?

Yes, the moratorium option is applicable for NRI customers as well.

• Will The Banks Automatically Apply The Moratorium Option Or The Borrower Have to Apply It Online Or Will Have to Approach The Bank?

Banks will come up with their own guideline. Experts believe that since the RBI has used the word ‘permitted’ and not directed, most people may have to request their banks to grant them the moratorium. State Bank of India, however, has already allowed all borrowers to avail of the moratorium, irrespective of whether they need it or not.

• Who All Will Benefit From The RBI’s 3-Month Moratorium Option?

Anyone who is in a liquidity crisis due to the COVID-19 outbreak will find it beneficial.

Moratorium Updates

RBI has planned to extend EMI moratorium on repayment of Home, Personal Loans for 3 more months i.e. till August 31, 2020. Earlier in March 2020, RBI had extended a 3-month moratorium on payment of all term loans due between March 1, 2020, and May 31, 2020.