Borrower need to approach for availing the moratorium for repayment of term loan & Working Capital. It’s not automatic

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Borrower need to approach for availing the moratorium for repayment of term loan & Working Capital. It’s not automatic

The only good news during this lock down period for the borrower from the bank is relaxation announced by The Reserve Bank of India. RBI has allowed all financial institutions for granting a three-month moratorium for repayment of all term loans. Relief has been granted in view of the COVID-19 outbreak and the subsequent lockdown proposed.

Let us know the exactly the nature of relief that has been recently granted by the RBI:

  1. Now, banks are authorised to allow all their customers relaxation from payment of their monthly EMIs for a 3-month period,. Such non-repayment will not hurt their credit score.
  1. It does not meant that if a person has exercise an auto debit option then no amount would be debited form their account.  RBI has only allowed banks to allow a moratorium. Individual banks will have to allow suspension of EMIs. It means that unless borrowers have specific approval from their bank, EMIs will still continued to be deducted from their account.
  1. For exercising an option, the banks will need to follow the due procedure which will vary from bank to bank as per their internal norms. After following their internal due procedures, they can grant a moratorium in repayment of the EMI.
  1. Such relaxation / moratorium in no way going to adversely affect the credit score or CIBIL of the borrower.
  1. All the banks whether it’s a nationalized banks, regional rural banks, small finance banks, local area banks, co-operative banks, all-India Financial Institutions, NBFCs, housing finance companies, and micro-finance institutions have to follow the above anouncments of the RBI.
  1. It must be noted that the moratorium is not equivalent to waiver or surrener of recovery rights. This is not at all a waiver but just a deferment. Borrower will have to pay the accumulated interest along with principal at a later as decided by the bank. RBI has suggested that the repayment schedule and all subsequent due dates as well as the tenure for such loans may then be shifted by next 3 months.
  1. It may be noted that the bank / instituitions will be charging interest for this three months of moratorium also. If the borrower have liquidity they may continue the payment as it is and need not opt for moratorium option.

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  1. Moratorium is granted for principal and interest both taken together. As a result, borrower may opt not to pay full EMI which will obviously include both, principal and interest for three months.
  1. Above relaxation is applicable on all loans outstanding as on March 1, 2020. Policy statement explicitly mentions term loans, home loans, personal loans, education loans, car loans, vehicle loans, equipment loans, business loans,   and any such loans which have a fixed tenure.
  1. It is not only for businessmen. Even loans taken by salaried taxpayers by way of personal loan will also be covered.
  1. Relaxation is there even for consumer durable loans, such as EMIs on mobiles, fridge, TV etc
  1. The credit card payments are not covered by above relaxation. As the credit cards are defined as revolving credit and not term loans, they are not not within the scope of the moratorium. Government should also give relaxation from payment of credit card dues also. The lockdown has made it difficult for the credit card holder to make the payment now.
  1. Any project loan whether by the builder or by the industrialist can take the benefit of present announcement by RBI.  Moratorium has given on all loan which are categorized as term loans. If the borrower approaches the bank for deferment, the banks are duty bound to grant the borrower a moratorium.
  1. Even the working capital limit has been covered in the announcements be the RBI. In short, RBI has allowed deferment of interest or all working capital loans taken by businesses houses. It is applicable for all working capital facilities which are outstanding as on 1stMarch 2020.

The accumulated interest for the period will be paid after the expiry of the deferment period. Most importantly, this moratorium or deferment will not be treated as change in terms and conditions of loan agreements and will not result in asset classification downgrade.

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