In a move to protect borrowers financially amid the nationwide lockdown, the Reserve Bank of India (RBI) has allowed all banks and financial institutions, including non-banking finance companies, to extend a three-month moratorium period on the instalments due between March 1, 2020 and May 31, 2020 for all term loans.
The relaxation is also applicable on consumer loans such as auto loans, home loans and personal loans, as well as credit card outstanding dues. A consumer may now choose not to pay the monthly equated instalments on their loans for the next three months.
“The repayment schedule for such loans, as also the residual tenor, will be shifted across the board by three months after the moratorium period,” the RBI said.
The banking regulator clarified that interest would continue to accrue on the outstanding portion of the term loans during the moratorium period.
The credit score of the borrower will not change due to the non-payment since the loan will not be classified as ‘non-performing’ by the lender.
State Bank of India (SBI) chairman Rajnish Kumar clarified that the moratorium is applicable for all borrowers of term loans and banks would have no discretion.
He also said that a customer who wanted to continue with the EMIs for the next three months could do so.
However, it is not clear yet as to whether the customer has to apply for the moratorium on instalments or it would happen automatically. EMIs paid through the electronic clearing service are automatically debited to the customer’s account.
The RBI has also permitted the lenders to allow borrowers of working capital facilities sanctioned in the form of cash credit or overdraft, payment of interest by three months outstanding as on March 1, 2020. “The accumulated interest for the period will be paid after the expiry of the deferment period,” the RBI said.
“The three-month moratorium on all term loan instalments, along with deferment of interest on working capital, will help mitigate debt servicing burden due to COVID-19 disruption, and prevent transmission of financial stress [to] various sectors of the economy,” Punjab National Bank MD and CEO S.S. Mallikarjuna Rao said.
