3 Month Loan Moratorium: Not a Waiver, May Not Benefit All Borrowers
On March 27, 2020, The RBI (Reserve Bank of India) Governor Shaktikanta Das announced a slew of fiscal measures to deal with the economic fallout of COVID-19. In the measures, all banking and non-banking lenders have been given authority to allow a three-month moratorium on the term and working capital loan. Term loans include all types of retail loans like gold loans, car loans, education loans, and credit card bill payments and many others. It believes that will be a major relief to borrows. While the central bank of India has said that this fiscal policy won’t reduce borrower’s credit score or affect the risk credit risk classification, according to entrepreneur.com.
Three-Month loan moratorium means, borrowers, both retail and businesses, will have a choice to not pay their EMI instalment for the next three months, falling due between 1st Mar to May 31, 2020.
All industry experts have appreciated this move. According to entrepreneur.com, Jaikishan Parmar (Senior equity research analyst, Angel broking) believe that this policy will give relive a lot to every borrows, form retail loan to small and big entrepreneurs. Considering this moment, RBI is being supportive to all stakeholders of the economy.
On the other hand, many experts have said that this move might impact leaders. According to Bhavin Patel (CEO and Founder of lenDenClub, a Peer to Peer lending platform.), there isn’t any other option appear under the effect of coronavirus. The term loan policy may impact the cash flow of banks and small NBFCs, from entrepreneur.com.
Debt Repayment postponed Not Waived
Here you should know that moratorium isn’t to be misinterpreted as a payment holiday or a loan waiver. It means, skipped EMIs will be accrued or added to the outstanding principal during the moratorium. Also, your payment tenure is going to enhance by those three months that you skip.
“In respect of working capital facilities sanctioned in the form of cash credit or overdraft, lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1,2020 up to May 31,2020 (Deferment). The accumulated accrued interest shall be recovered immediately after the completion of this period.” RBI Statement.
It is just loan payment deferment to ease the burden of EMI to those who are having an issue to pay due to lockdown, which is likely to end 14 April.
The Devil is in Details
For those of you thinking that it is a blanket advantage that is going to be passed to all borrowers, here let me clear that It isn’t at all. instead of it, the decision to give permission about a three-month moratorium will depend upon with individual banks.” Lending institutions shall frame board-approved policies for providing the above mentioned (loan payment deferment) reliefs to all eligible borrowers,” said RBI Statement.
The more important thing, there is not any clarity we are getting whether a bank can allow the moratorium to all its borrowers or evaluate passing it on case to case basis. Entrepreneur India has mailed to two banks know about truth but they don’t get a reply at all until now.
In such a case we would recommend to those borrowers who are willing to avail the loan moratorium that they should direct approach their bank to check their eligibility. For your information, it will start on 1 March 2020 and last 31 May. It means you will have two-month relaxation unless their EMI for the march hasn’t been paid yet. If March EMI payment has defaulted due to the non-availability of funds in a bank account, that will be given relief under the moratorium period.