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RBI extends EMI moratorium for another three months on term loans. Here's what it means for borrowers

The earlier deadline of three-month EMI moratorium on term loans was ending on 31 May 2020.

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Last Updated: May 29, 2020, 09.51 AM IST
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The Reserve Bank of India (RBI) announced an extension of the moratorium on loan EMIs by three months, i.e. August 31, 2020 in a press conference dated May 22, 2020. The earlier three-month moratorium on the loan EMIs was ending on May 31, 2020. This makes it a total of six months moratorium on loan EMIs starting from March 1, 2020 to August 31, 2020.

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 can adversely impact one's credit score.

As per the Statement on Developmental and Regulatory policy of the central bank, "On March 27, 2020, the RBI permitted 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 and micro-finance institutions) (referred to hereafter as “lending institutions”) to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020. In view of the extension of the lockdown and continuing disruptions on account of COVID-19, it has been decided to permit lending institutions to extend the moratorium on term loan instalments by another three months, i.e., from June 1, 2020 to August 31, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by another three months."

The RBI has further clarified that such treatment will not lead to changes in the terms and conditions of the loan agreements which is same as announced in the previous moratorium period.

As per the policy statement, "As the moratorium/deferment is being provided specifically to enable borrowers to tide over COVID-19 disruptions, the same will not be treated as changes in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade. As earlier, the rescheduling of payments on account of the moratorium/deferment will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions in pursuance of the announcements made today do not adversely impact the credit history of the borrowers. In respect of all accounts for which lending institutions decide to grant moratorium/deferment, and which were standard as on March 1, 2020, the 90-day NPA norm shall also exclude the extended moratorium/deferment period. Consequently, there would be an asset classification standstill for all such accounts during the 5 moratorium/deferment period from March 1, 2020 to August 31, 2020. Thereafter, the normal ageing norms shall apply. NBFCs, which are required to comply with Indian Accounting Standards (IndAS), may follow the guidelines duly approved by their Boards and advisories of the Institute of Chartered Accountants of India (ICAI) in recognition of impairments. Thus, NBFCs have flexibility under the prescribed accounting standards to consider such relief to their borrowers."

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 RBI rules, any default payments have to be recognised within 30 days and these accounts are to be classified as special mention accounts.

As per the debt servicing relief announced by RBI, 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 these will continue for the extended period of the EMI moratorium.

Naveen Kukreja, CEO and Co-Founder, Paisabazaar.com says, "The extension of loan moratorium will provide relief to those facing difficulties in servicing their loans due to cashflow and income disruptions. The deferment of loan repayments will neither incur penal charges nor impact their credit score. However, those availing the extended loan moratorium will continue to incur interest cost on their outstanding loan amount during the moratorium period. This will increase their overall interest cost. Hence, those with sufficient liquidity to service their existing loans should continue to make repayments as per their original repayment schedule. Remember that the accrued interest on availing the loan moratorium can be significantly higher in case big ticket loans like home loans and loan against property with long residual tenure and sizeable outstanding loan amount."

RBI in a press conference dated March 27, 2020 announced that all banks, housing finance companies (HFCs) 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.

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