All banks, NBFCs to allow 3 month moratorium on all term loans


The Reserve Bank of India (RBI) today in a press conference announced moratorium on term loans for up to three months.

The RBI in its statement said, “All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all -India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by three months.All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all -India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by three months.”

This is likely to mean that individuals EMI repayments of loans taken would not be deducted from their bank accounts till the above mentioned time. The loan EMI payments will restart only once the time period expires.

The central bank further said, “The moratorium/deferment is being provided specifically to enable the borrowers to tide over the economic fallout from COVID-19. Hence, the same will not be treated as change in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade. The lending institutions may accordingly put in place a Board approved policy in this regard.”

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The relief has been come after the finance ministry wrote to the central bank suggesting a moratorium on EMI, interest and loan repayments for few months, as per an Economic Times report.

There have been requests from various stakeholders to defer the EMI payments as the country is going through a 21-day lockdown due to spread of COVID-19.

This will come as relief as many individuals, especially self-employed individuals, were staring at income loss and would have found it difficult to service their loans such as car loans, home loans etc. If they had missed any EMI payment they were risking adverse action by banks which could result in a hit on their credit score.

As per Reserve Bank of India (RBI) rules, any default payments have to be recognised within 30 days and these accounts are to be classified as special mention accounts.

What does moratorium mean for you?

Moratorium period refers to the period of time during which you do not have to pay an EMI on the loan taken. This period is also known as EMI holiday. Usually, such breaks are offered to help individuals facing temporary financial difficulties to plan their finances better.

Normally, financial planners advise that one must check the terms and conditions of any EMI holiday period offered by the lender. This is because usually lenders charge simple interest instead of compounding interest during the moratorium period.





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