Reserve Bank of India governor Mr. Shaktikanta Das took a decision of allowing a 3 month moratorium on all term loans outstanding installments from 1st March 2020 to 31st May 2020.

This decision will provide temporary relief to lower and middle class people that can use their EMI savings to bring groceries and other essential items.

What is a moratorium period?

A moratorium period takes place when the customer who has taken a loan doesn’t need to make any EMI repayment. This period is temporary and will be chosen by the apex body handling the finances in any country.

This decision is applicable to the following Banks and NBFCs:

• Regional & PSU Banks
• Rural banks
• Co-operative banks
• Private Banks & NBFCs

EMI Moratorium – Important things to know

1. Moratorium isn’t a waiver:

With this decision, you have an option of not paying these EMI’s for 3 months. You will have to pay them off later. This does not mean in any way that these 3 months EMIs have been waived off.

2. The Cost related to Moratorium:

You cannot call this as a delay. If you think your EMI just gets shifted to 3 months, then you are wrong. Not paying your EMI’s for these months can come at a high cost. We say this because, the EMI amount of these 3 months will be added to your principal amount.

E.g. If your Home loan EMI is for 3 years, then after this moratorium period it won’t just become 3 years and 3 months! This is what it will actually become:

Outstanding loan term	Moratorium	Revised loan term	Extra EMI added
36 months	3 months	40 months	1 month
60 months	3 months	65 months	2 months
120 months	3 months	128 months	5 months
180 months	3 months	191 months	8 months
240 months	3 months	258 months	15 months

3. What are the Banks doing?

• Some banks will assume opt-in by default
• Some banks will assume opt-out by default

As a customer, you must phone your Bank and instruct them if you wish to take the moratorium or no. If you don’t wish to step out of the house because of the Coronavirus scare, then you can visit the Bank’s website, click and say ” I don’t want the moratorium”.

Why should you do this?

It’s simple. Because if you don’t inform the Banks, they will assume by default that you don’t want the moratorium. Then they will auto deduct your EMI every month.

4. Tax implications:

There’s always a tax angle here. If you don’t pay the EMI for these 3 months, then next year you cannot claim these taxes during filing.

So these are some important things you must know about the moratorium period allowed by the RBI.

If you have any questions, we have created a list of FAQ’s that you can look at. We hope all your doubts get solved in it.

FAQs

· What type of loans will the moratorium period cover?

As per the RBI statement, they have mentioned term loans that include personal loans, home loans, car loans, education loan and any other type of loan that has a fixed tenure. Yes, this includes online loans like consumer durable loans like loans taken for smart-phones, TV, and Fridge.

· Will this moratorium period cover my credit card payments?

As per the RBI statement, credit card dues must also be covered under the moratorium period. For the next 3 months, any money that you borrow using your credit card wouldn’t be required to be paid. After this period ends, you will have to pay the whole bill. This will only be a temporary relief.

But if you ask us, we wouldn’t advise it if u have a good balance available. If you accept this moratorium, Banks will charge you the interest amount outstanding every month. This is just a relief so that you will not be considered as a Defaulter.

· My EMI is due soon. Will the payment be automatically deducted from my savings account?

Your Bank will send you a process note in a prescribed format. If you opt for this note, then only will you be considered eligible for the moratorium? Else, your Bank will continue deducting the EMI as a routine payment from your account.

· Is this a waiver of my 3 months EMI or a deferment of EMIs?

Please don’t be confused about these terms. RBI is merely delaying your EMI payment. You will have to pay these EMIs as well once the moratorium period ends.

If you wish to apply for a loan like a credit card or an instant personal loan then you can do so by applying on the Ruloans web portal. Click Here

· Is the moratorium period only for principal amounts or also includes interest?

Please understand that you can reschedule the principal amount for a period of 3 months that starts from March 1 to May 31, 2020. 

E.g. If your last installment of the loan is due for payment on 1st March 2020, it will then become payable on 1st June 2020.

For all your EMI based loans, 3 EMIs that are due between 1st March to May 31st, 2020 will be extended by 3 months. But these EMIs of 3 months will have to be repaid during the extended period.

· What is the treatment that will take place for interest on working capital facilities?

Please note that any recovery of the Interest applied to cash credit/overdraft on 31st March, 30th April and 31st May 2020 is being considered as ‘deferred’. However, the entire interest will be recovered along with the interest being applied on 30th June 2020. So you will have to pay all these 3 months’ interest amount later.

· If my bank suspends my EMIs, will non-payment of these EMIs impact on my credit score?

No. Once the Bank approves suspension of EMI payment, your credit score will not be impacted. Be rest assured.

· Does this mean Individuals & businesses with huge loans should take this benefit?

As mentioned above, your credit score won’t be affected. But we suggest that you opt for this option only when your cash flow or income source is affected. You must remember that the interest will continue to be accrued even if you don’t pay now. Hence the cost will increase at the end of these 3 months for you.

E.g.

Loan outstanding – 1,00,000 INR

Interest rate – 12% or 10%

Interest amount – 1,000 INR or 833 INR

If you opt for the moratorium of 3 months, you still will be liable to pay the interest @ 12% for these 3 months = 3,030.10 INR & @10% interest it will be 2,521 INR for 3 months.