Lockdown Effect: What does moratorium mean and why RBI announced it?

The 3-month moratorium means that no EMI would be deducted from the accounts of any loan borrower for 3 three months here is what all we know?

A day after Financial Minister Nirmala Sitharaman announced a 1.75 lakh core of economic package to combat the impact of 21 days lockdown amid coronavirus, RBI governor brought this to the common people by announcing a moratorium on loans for the next three months.

The moratorium will be applicable for corporate loans, home loans, car loans and personal loans

However, there were many doubts regarding the announcement. Every financial institution (Banks) has the authority to decide how to implement the moratorium order. Is there any concession on the interest rate?

Here we will try to brief some issues that may be of your help

Why RBI announced moratorium for 3 months? 

Amid the corona outbreak and the government announcement of lockdown there might are chances of losses or the disruption of credit flow. So, to  decrease some burden on borrowers the government came with this precautionary measure to bring some relief to the common citizens.

Who is eligible for this package?

All term loans, Agricultural loans, retail, crop loans, pool purchase loans and cash credit/overdraft are eligible to avail the benefits under the package.

Is rescheduling of term loans only for the principal amount or it also includes interests

Rescheduling of principal can be done for a period of three months falling due between March 1, 2020, and May 31, 2020. For example, where the last installment of a term loan falls due for payment of on say 1st March 2020, it will become payable on 1st June 2020. For EMI based term loans, it will be three EMIs falling due between 1st March 2020 and May 31st, 2020 and the tenor will be extended by three months and have to be repaid during the extended period. For other term loans, it will be all the installments and Interest falling due during the same period, irrespective of the tenor of payment

What will be the impact of this relief on borrowers as far as reporting of default is concerned?

Any delay in payment leads to default and gets reported to Credit Bureaus. For business loans of Rs. 5 Crores and above, the banks report the overdue position to RBI also through CRILC. As a result of this relief package, the overdue payments post 1st March 2020 will not be reported to Credit Bureaus/ CRILC for three months. there will not be any panel interest or charge payable to the banks.

Read more: Important Events that got postponed due to Coronavirus outbreak

Should everyone take this benefit?

You can take this benefit if there is a disruption of cash flow or if you face any losses. But you should take account that the interest on loans, not mandatory payable immediately, continues to occur in your account and results in a higher cost.

What about my credit card dues?

The relief is available for credit card payments also. In case of credit card dues, there is a requirement to pay minimum amount and if it is not paid the same gets reported to Credit Bureaus. In view of the RBI circular, the overdue in the credit card account does not get reported to the credit bureaus for a period of three months.

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