Term loans: what the 3-month moratorium on term loan repayments means for borrowers


At first glance, the three-month moratorium on term loan repayment by borrowers means that they would not have to pay EMI loan maturities during the moratorium period. According to the statement by the Reserve Bank of India (RBI), the use of such a moratorium would also not lead to a degradation of the borrower’s credit rating or affect the risk classification of the loan. In addition, taking advantage of the moratorium will not result in any change in the existing terms and conditions of the loan. If the existing terms and conditions of the loan contain conditions / fees related to a moratorium, these may apply depending on the moratorium policy adopted by the lending institution. According to the RBI, the refund of credit card dues may also be deferred under the moratorium mechanism.

Under normal circumstances, if loan repayment is deferred, the borrower’s credit history and the risk classification of the loan may be adversely affected. However, in the event of this moratorium, the borrower’s credit rating will not be affected in any way, according to the central bank statement.

RBI, in a circular issued later, clarified the following: Interest will continue to accrue on the unpaid portion of term loans during the moratorium period. Deferred payments under the moratorium will include the following payments due March 1, 2020 to May 31, 2020: (i) principal and / or interest components; (ii) in fine reimbursements; (iii) equivalent monthly payments; (iv) credit card charges.

The Reserve Bank of India (RBI) at a press conference dated March 27, 2020 announced that all banks and NBFC have been authorized to allow a 3-month moratorium on repayment of outstanding term loans on March 1 2020.

The above interpretation is based on the intention of the RBI as stated in today’s statement. However, the actual conditions of the moratorium may vary depending on how different banks implement it. It is also not clear whether borrowers will have to pay interest on the loan at a later date for the 3-month moratorium period. Normally, simple interest is payable on a loan during a moratorium period.

The RBI in its statement said: “All commercial banks (including regional rural banks, small financial banks and local banks), cooperative banks, all Indian financial institutions and NBFCs (including finance companies housing and microfinance institutions) (“credit institutions”) are authorized to grant a three-month moratorium on the payment of down payments in respect of all term loans outstanding as of March 1, 2020. Accordingly , the repayment schedule and all subsequent maturities, as well as the duration of such loans, can be staggered up to three months. ”

A moratorium of this nature would normally imply that EMI repayments on loans taken out by individuals would not be deducted from their bank accounts until the end of the moratorium period. The EMI payments of the loan will not resume until the 3 month moratorium period has expired.

Gaurav Gupta, CEO and Founder of MyLoancare.in, said: “In a significant relief for borrowers, the RBI allowed banks to grant a three-month moratorium on all term loan repayments without negatively affecting the portfolio. assets of banks and the credit rating of borrowers. Due to the moratorium, the term of these loans will be extended by 3 months, which should be possible as variable rate loan contracts usually include a loan term extension clause. Customers will also pay additional 3-month interest on their current balance. Amount of the loan. Will customers have to pay this additional interest all at once or will they be allowed to adjust it as an additional EMI, which needs to be clarified by the banks. ”

The central bank governor further said, “The moratorium / postponement is intended specifically to enable borrowers to overcome the economic fallout from COVID-19. Therefore, this will not be treated as a change in the terms and conditions of loan agreements due to financial hardship of borrowers and, therefore, will not result in downgrading of asset classification. Credit institutions can therefore put in place a policy approved by the Council in this regard.

Speaking to ET Now, SBI Chair Rajnish Kumar said: “Regarding the moratorium period, overall all term loan IMEs (including those taken out for home loans) will automatically be delayed by three months. ”

The RBI statement, released later, states: “The rescheduling of payments will not be considered a default for the purposes of prudential reporting and reporting to credit information companies (CICs) by credit institutions. . CICs must ensure that the measures taken by credit institutions in accordance with the above announcements do not have a negative impact on the credit history of beneficiaries. ”

Adhil Shetty, CEO of BankBazaar.com, said: “If you can afford to pay off your loan IMEs, you should try to set aside this amount even if you are not required to pay them during the moratorium, at unless it has a negative impact on other financial requirements. This would ensure a rapid reduction in the loan burden once the moratorium is over. Most importantly, get complete clarity with your lender on what impact this will have on your loan before you close, and don’t make any assumptions based on hearsay. Non-payment of the loan IMEs during the moratorium will not impact your credit score, as the Governor of the RBI mentioned. As such, you need to stay current by regularly checking your credit score during the moratorium period. ”

The central bank announcement follows a letter from the finance ministry to the bank suggesting a moratorium on EMI, interest and loan repayments for a few months, according to a previous Economic Times report.

Various stakeholders have asked to defer EMI payments as the country is going through a 21-day lockdown due to the spread of COVID-19.

It will give relief to many people especially the self-employed as they would have had difficulty in repaying their loans such as car loans, home loans etc. due to the loss of income during the foreclosure period. If they had missed an EMI payment, they risked adverse actions from the banks that could have affected their credit score.

According to Reserve Bank of India (RBI) rules, any default payment must be recognized within 30 days and these accounts must be classified as special mention accounts.

It should be noted that the RBI has authorized all of the credit institutions mentioned above to offer a 3 month moratorium on term loans, but banks must obtain approval from their respective boards of directors to implement moratorium policy. Therefore, the decision to offer a moratorium actually rests with the lending institution. Therefore, borrowers should seek clarification from their lending institutions on how this moratorium, when and if offered, will work for them.

The circular issued later by the RBI clarified: “Credit institutions must develop policies approved by the Council to provide the above-mentioned relief to all eligible borrowers. 2020, the bank will develop an MIS on the reliefs granted to its borrowers, which will include in particular information concerning the borrower and the credit facility concerning the nature and amount of relief granted. The instructions of this circular come into force with immediate effect. The board of directors and senior managers of credit institutions ensure that the above instructions are properly communicated downstream in their respective organizations and that clear instructions are given to their staff regarding their implementation.

What does moratorium on loans mean?

The moratorium period refers to the period of time during which you do not have to pay EMI on the loan taken out. This period is also known as the NDE vacation. Usually, such breaks are offered to help people facing temporary financial difficulties to better plan their finances.


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