EMI Relief: Banks, NBFCs To Allow 3 Month Moratorium On All Term Loans

The Reserve Bank of India (RBI) announced measures on Friday to fight the economic impact of lockdown to control the spread of coronavirus pandemic. As a relief to borrowers, Governor Shaktikanta Das allowed a moratorium of 3 months on payments of instalments on term loans outstanding as on 1 March 2020 from all commercial, regional rural and small finance banks and NBFCs.

A deferment for interest payments on all working capital loans taken by businesses was also allowed by the Central Bank.

"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) ("lending institutions") are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020," RBI's press release said.

"Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by three months," it added.

Lenders are permitted to grant a moratorium of three months on payment of all instalments falling due between 1 March 2020 and 31 May 2020 on:

(i) principal and/or interest components
(ii) bullet repayments
(iii) Equated Monthly instalments
(iv) credit card dues

This means that EMI repayments of loans would not be deducted from their bank accounts for 3 months and payments will only restart once the stipulated time period expires. Also, your credit score will not be affected by non-payment during this period.

However, not that the final decision on allowing the moratorium is in the hands of the individual banks and experts advise on checking the terms and conditions the respective bank or lending institution.

With regard to deferment of interest on working capital facilities, RBI said that for those "sanctioned in the form of cash credit/overdraft, lending institutions are being permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the deferment period."

The central bank further added that "the moratorium/deferment is being provided specifically to enable the borrowers to tide over the economic fallout from COVID-19. Hence, the same will not be treated as change in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade. The lending institutions may accordingly put in place a Board approved policy in this regard."

The announcements come as a relief to many individuals, especially self-employed individuals, who could face loss in their income over the coming days due to the government imposed lockdown to curb the spread of COVID-19.

Some have found it difficult to service their loans such as car loans, home loans etc and missing EMI payments would mean adverse action by banks. Various stakeholders had requested to defer the EMI payments as the country is going through a 21-day lockdown could affect the income of many individuals and businesses.