RBI Loan Moratorium | What Should You Do Now?

RBI Loan Moratorium : Should You delay your EMIs by 3 months?

Introduction

What does RBI Loan moratorium of 3 months on repayment of outstanding loans mean for borrowers? What Should You Do Now? Should You delay your EMIs by 3 months? Lets discuss the details of RBI’s EMI moratorium announced in the MPC meet on Friday, March 27, 2020.

Retail borrowers concerned about the impact of COVID-19 on their finances, and thus, their ability to repay their loans have got some breathing space, thanks to the Reserve Bank of India’s (RBI’s) mega relief package.

RBI Loan Moratorium

• In the Seventh Bi-monthly MPC meet of FY2019-20, RBI Announced a Regulatory Package of EMI Moratorium as a relief measure amid Coronavirus outbreak in the country. Thus, RBI is intended to address major concerns as mentioned below through this moratorium :
  1. Mitigate the Burden of Debt Servicing due to disruptions on account of COVID-19 pandemic
  2. Prevent the Transmission of Financial Stress to Real Economy
  3. Ensure the Continuity of Viable Businesses
  4. Provide Relief to the Retail and Business Borrowers

What Does Loan Moratorium 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

Key Details of RBI’s EMI Moratorium of 3-months

• What Type of Lenders Can Issue the RBI’s EMI Moratorium?
  1. Commercial Banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks)
  2. Primary (Urban) Co-operative Banks/State Co-operative Banks/ District Central Co-operative Banks
  3. All-India Financial Institutions
  4. Non-Banking Finance Companies (including Housing Finance Companies & Micro Finance Institutions)
• Tenure of EMI Moratorium
  • RBI availed moratorium on EMIs Falling Between March 1, 2020 to May 31, 2020
• What Type of Loans can be Availed under the Moratorium?
  1. All Types of Term-loans : All types of Retail Loans (Home Loan, Auto Loan, Education Loan, Personal Loan, Consumer Durable Loan), Agricultural Loan, Crop Loan                            
  2. Credit Card Dues
• Does the Moratorium Cover Both Principal & Interest?
  • Yes. Borrower will be exempt from entire EMI including payment and interest for 3-months. (This moratorium is applicable on all loans outstanding as on March 1, 2020)
• Is This a Waiver of EMI or a Deferment of EMI?
  • It is a deferment & not a waiver. Residual Tenure, Repayment Schedule & Subsequent Due Dates will be Shifted by 3-months.
  • Interest shall continue to accrue on the outstanding portion of the term loans during the 3-months of moratorium period.

What Should You Do Now – Should You delay your EMIs by 3 months?

A. Don’t Stop Your EMIs If You Can Afford to Pay

• Opting for EMI Moratorium will extend your Residual Loan Tenure by 3 months.
• Interest shall continue to accrue on the outstanding portion of your loan during 3-months of moratorium period ie. you have to pay extra interest for 3-months of moratorium period.
• If your loans are linked to external benchmarks – Repo Rate, then there will be huge tax savings on your interest outgo (Due to Repo rate cut of 75 bps from 5.15% to 4.40%). One should Choose Shorter Tenure than Lower EMIs.

B. Try Hard to Pay off Your Credit Card Dues

• Although RBI covered the Credit card dues also under its EMI Moratorium flexibility. But Don’t Make a mistake to Opt for Moratorium for Credit Card Dues.
• Deferment of payments towards your Credit Card Dues will continue to accumulate interest during the moratorium period or until you clear the credit card dues.
• Since Credit Card is an unsecured loan, Interest charged is extremely high, typically more than 40% per annum.
• Interest accrued on your credit card bill could blow up to an unmanageable amount if you do not make attempts to clear the dues.