Should You Opt for RBI’s EMI Moratorium and defer loans by 3 months

In the wake of the current economic situation due to the spread of COVID-19 pandemic in India, RBI announced a three-month loan deferment Indians to bring them some relief in this scenario of financial turmoil. As we all know that the country is currently in a state of lockdown and all the businesses are shut down. In such a situation, it is difficult for people to pay their loans and EMI’s. The RBI’s decision was taken to provide some relief to such people who have payments of loans or EMI’s due.

The three-month loan deferment means that suppose if a loan ends in 18 months, it will come to an end in 21 months if a person chooses to defer the loan.

This decision was taken by RBI keeping in account the disruption in the Cash Flow, which the businesses are facing so as to give them some relief.

For those who are not aware of what moratorium means, it is the period during which the borrowers are not required to pay the amount of EMI due to the loan taken by the borrower. This period is also referred to as EMI Holiday, which is offered to individuals when there are financial difficulties prevailing in the country till the time finances become normal.

However, RBI has allowed the commercial banks to provide the facility of the moratorium to its customers; it has not ordered the banks to provide such a relief. This means that the commercial banks are not obliged to provide this facility and can accept or neglect it based on their own financial health.

The customers on their part should keep in mind the fact that it is not a waiver; instead, it is just a moratorium facility.

This decision from RBI has created a lot of confusion among the people as to whether they should opt for this moratorium facility or not.

Usually, if the loan repayment is deferred from the end of the borrower then it has an adverse impact on the borrower’s credit history and risk classification. This is what is making the borrowers reluctant from opting for this facility.

To the benefit of the borrowers, if they opt for the moratorium facility offered by RBI in that case, the borrower’s credit rating will not be impacted in any way.

Also, if one avails the moratorium facility, then there will not be any changes in the terms and conditions of the loan taken by the borrower. If there are any charges or conditions related to the moratorium in the loan, then there will be no changes in the existing terms and conditions. As per the circular issued by RBI, repayment of credit card dues can also be deferred under the moratorium facility.

The deferred instalments as per the RBI’s circular under the moratorium include the following payments which will fall due from 1^st March 2020 to 31^st May 2020:

1. The principal and/or the interest components
2. Bullet repayments
3. Credit card dues
4. EMI’s ( Equated Monthly Instalments)

As per RBI’s statement all the commercial banks, NBFCs, all-India Financial Institutions, and Co-operative banks are permitted to allow for the moratorium facility of three months the repayment schedule of which may be shifted by three months across the board. The moratorium is applicable for all the term loans irrespective of the segment and tenor of the loan to which they belong.

When the statement from RBI was issued, borrowers also had a confusion regarding the fact that whether they are required to pay the amount of interest for the three month period of moratorium. This was made clear in the statement that the interest will continue to accumulate for the period of three months which will be recovered immediately after the period of moratorium comes to an end.

For taking advantage of the moratorium, you need to apply for the same with your bank.

Now the main question arises that whether loan borrowers and credit cardholders should take the advantage of this facility and defer the payment of their loans and EMI’s for a period of three months.

To all the people planning to opt for the moratorium, here is the key. If you are capable of paying the amount of EMI due on you, then you should not opt for deferring the payments.

If it is possible for you to pay for the amount of loans and EMIs through your current savings and investments without having an adverse impact on your lifestyle, then you should continue to pay them.

If you are of the opinion that the extended layoff will make it difficult for you to resume your earnings, then let us inform you that this delay is only temporary. In such a case, it would be better for you to service your loans and EMIs on time by selling some of your assets.

Those who have a regular source of income should certainly not opt for it as you still are required to pay the amount of interest due. For instance, say if you have an EMI due of Rs.1000 and the bank charges you an interest of 10% on the outstanding amount. If you opt for the moratorium you will have to pay Rs25 extra for all the three months which is the period of the moratorium. This means that you will be required to pay an additional amount of interest which might either be added to you future EMIs or the loan tenure will be extended at the same level of EMI.

Since it is as the desction of the bank that whether they offer the EMI holiday or not, the first and foremost thing for you is to check whether your bank is offering this facility to its borrowers or not. As mentioned by experts, try not to opt for the moratorium if you have regular cash flows and are capable of paying the amount of EMI without affecting your lifestyle.