Coronavirus | How will the three-month moratorium on EMIs impact customers?

Will this mean EMIs are being waived for three months?

Updated - April 05, 2020 01:48 pm IST

Published - April 05, 2020 12:02 am IST

The story so far: On March 27, the Reserve Bank of India (RBI) slashed interest rates to counter the economic fallout of the coronavirus pandemic. It also announced other relief measures, which included permitting banks to provide a three-month moratorium on all term loans.

What is the loan moratorium, as announced by the Reserve Bank of India?

Due to economic disruptions caused by the nationwide lockdown which has led to stress in the financial position of borrowers due to cash flow mismatches, the RBI has allowed banks and financial institutions such as housing finance companies to put a three-month moratorium — March, April and May — on repayment of term loans. A home loan, a personal loan, loan against property, car loans are classified as term loans. So a customer can choose not to pay the monthly instalments for these months. The facility is also applicable for credit card dues. Opting for the moratorium is not mandatory for borrowers who can continue to pay their equated monthly instalments (EMIs).

Also read | Lenders ready with offer for EMI holiday

Will availing the moratorium impact the credit score of the borrower?

No, it will not impact the credit score since banks are not going to be allowed to classify the loan as a non-performing asset (NPA). Banks will not be able to report any default on this count to the credit bureaus.

Will this mean EMIs are being waived for three months?

No, EMIs are not being waived, the amount has to be paid later, after the moratorium is lifted. The interest accumulated in these three months will be added to the principal. As a result of not paying the EMI for three months, the tenure of the residual EMIs will increase. Alternatively, customers can opt to increase the amount of EMI while keeping the tenure intact.

What is the burden on the customer who opts not to pay for three months?

The burden will be higher if a customer is at the beginning of the loan cycle since the principal outstanding is higher and vice- versa. ( See chart )

image/svg+xmlSCENARIO 1: Early in loan tenureCurrent future (unbilled) principal amountRs.40,00,000Remaining tenor/EMIs240Current ROI9.00%Number of months of Moratorium3Current EMIRs.35,989 Accrued interest during moratorium to becapitalizedRs.90,000 New outstanding40,90,000 A: Tenor does not changeNew EMI if tenor does not changeRs.36,799 Increase in EMIRs.810 % increase in EMI2.25%B: EMI does not changeNew tenor if EMI does not change256 Increase in remaining tenor (months)16SCENARIO 2: Middle of loan tenureCurrent future (unbilled) principal amountRs.20,00,000Remaining Tenor/EMIs60Current ROI9.00%Number of months of Moratorium3Current EMIRs.41,517 Accrued interest during moratorium to be capitalizedRs.45,000 New outstandingRs.20,45,000A: Tenor does not changeNew EMI if tenor does not changeRs.42,451 Increase in EMIRs.934 % increase in EMI2.25%B: EMI does not changeNew tenor if EMI does not change61.71 Increase in remaining tenor (months)1.71

How does one apply for a loan moratorium?

Different bank/non-banking financial companies have offered different ways on how to apply. Some lenders have a link on their website for applying for the moratorium while some have asked customers to send an e-mail to a particular address. Some banks are also accepting physical copies of the request at their branches. It is best to visit the lender’s website to find out how to apply.

Can a bank or a lender decide who to offer the moratorium to?

No, banks don’t have the discretion. Banks have to offer respite to any customer who wants to opt for the moratorium.

What if the EMI for March is already paid?

Customers need to inform the lender about it and seek reversal of the EMI. Alternatively, they can opt for a moratorium on the next two months (April and May).

Also read | SBI, HDFC Bank, ICICI activate EMI moratorium option for customers

Can lenders charge a fee or a penalty on the customer for opting for the moratorium?

No, they cannot charge a fee or a penalty.

What happens if a collection agent approaches a customer in these three months?

The Indian Banks’ Association has clarified that customers should not get upset with collection agents or bank staff but explain to them that they have opted for the benefit being extended under a regulatory package.

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