In the midst of the outbreak of Coronavirus, the Reserve Bank of India (RBI) has announced a 3-month moratorium on all term loans in a press conference. RBI Governor Shaktikanta Das said in his statement, ‘All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, All India Financial Institutions and NBFCs (housing finance companies and micro-finance institutions) (‘Lending Institution’) has been allowed to provide a three-month deferment on payment of instalments in respect of all loans outstanding up to March 1, 2020. ‘
Accordingly, the repayment schedule and subsequent due dates of such loans can be transferred to the board for three months.
This may mean that loan instalments will not be deducted from people’s bank accounts for 3 months. The EMI of the loan will start again when this period ends.
According to the Economic Times report, this relief came after a letter from the Finance Ministry that he wrote to the Reserve Bank. In this, the Finance Ministry had advised the common people to give relief from payment of loan instalment for a few months. Due to the spread of Covid-19, the country has been locked down for 21 days. Since then, various stakeholders have been requesting deferment in payment of EMI payments.
This step will benefit all those people, especially those employing themselves, who are not earning any income and were standing in front of open debts like cars and home loans. If they defaulted in EMI payment, the bank would take strict action and their credit score would also be affected.
According to the rules of the Reserve Bank of India (RBI), if there is a default in the payment within 30 days, then such accounts are called Special Mention Accounts.
What does this stop mean for you?
Moratorium period is the period in which you do not have to pay any EMI for the loan taken. You can also call this period as EMI Holiday. Usually such breaks are given to people when they are temporarily struggling with some financial problem.
Generally, financial planning advisors recommend that everyone should check the terms and conditions of the proposed EMI holiday period on behalf of the lender. This is because lenders usually charge simple interest in lieu of compounding interest during the moratorium period.