RBI's EMI Moratorium For 3 Months: What It Means For Borrowers?

To encourage growth and tide over the economic fallout due to Covid19 outbreak and the following lockdown, the RBI today announced a steep repo rate cut of 75 bps to 4.4%. Repo rate is the rate at which the central bank lends money to commercial banks. Also, on the sidelines it allowed all financial entities including banks, NBFs and HFCs to grant a 3-month moratorium for all term loans.

RBI's EMI Moratorium For 3 Months: What It Means For Borrowers?

So, following the RBI's decision here are some of the queries answered on the issue:

- What will happen if my EMI is due in some time?

The RBI has allowed banks to grant a moratorium for 3-months but until and unless your banker approves the same for you against your loan repayment, your EMI shall still be debited from your bank account. Notably banks would take the decision at their board level and after it's approved, customers will be informed on the moratorium.

- If my bank suspends my EMI and grants moratorium, will it result it any effect on my credit worthiness or credit score?

No it shall not as the non-repayment will not have a negative impact on your credit score.

- Which financial institutions will offer this relief on EMIs to customers?

All commercial banks that includes regional rural banks, local area banks, small finance banks, co-operative banks, NBFCs such as housing finance companies and micro-finance entities will defer the EMI payment for their customers in the wake of coronavirus crisis.

- How will interest and payment be serviced post the moratorium period?

Here it must be noted that this is not a waiver which shall be allowed on EMIs but due to the current lockdown when businesses have virtually come to a standstill is a form of relief wherein EMIs for 3 months shall be deferred to a later date.

And post the expiry of this period, you will have to service both the accumulated principal and interest payment as decided by your bank. RBI has suggested that the repayment schedule and all successive EMI due dates together with the loan tenure should be adjusted by 3 months time across the board.

- On which loan products the moratorium relief will be offered?

The RBI statement clearly specifies term loans that include personal loans, home loans, auto loans, education loans etc. that are extended for a fixed tenure. Also, for loans taken for purchasing consumer durables including ACs, fridge, mobile phones will also be covered.

- Will the relief be provided on both interest and principal?

On all loans outstanding as on March 1, 2020, if your bank permits you will be exempted from paying your entire EMI that includes both principal and interest for 3 months time.

- Will moratorium be extended to credit card payments?

Yes.

- What is the relief offered for businesses?

In respect of working capital loans taken by businesses, RBI has allowed deferment on interest payments. This applies to all such loans outstanding as on March 1, 2020. Further, this relief should not be interpreted as change in terms and conditions of loan and shall not bring about asset classification downgrade.

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