RBI EMI Moratorium- To Claim Or To Not

RBI EMI Moratorium- To Claim Or To Not

By
Akhila Masapogu,06-Apr-2020
Assetmonk-RBI-EMI-Moratorium

The RBI’s recent announcement regarding EMI moratorium among the deadly Pandemic spread out and the lockdown is a much-needed relief. The current issues in India might cause liquidity issues adding up to the looming recession.

Since the implementation of the lockdown in the country most all the businesses except for the emergency services have taken a back seat. Most businesses involved with technology have started work from home whilst the large group of the unorganized sector remain work less. This indicates low stable income, less money in transaction and high illiquidity in the market.

To save the citizens from negative effects of the Pandemic, lockdown and the illiquidity RBI recently ordered the financial institutions to issue a three-month EMI moratorium. Just to make sure that the people who are already having a tough time with an unstable income, do not get overburdened with the EMI’s, RBI made this decision.

Banks and other financial entities including Microfinance institutes should now allow their customers to defer their payments that are due for the month’s March, April and May, for their loan installments. All types of loans such as home loans, personal loans, car loans, working capital loans, and agriculture loans are covered under the declared moratorium plan. Even the credit card dues are eligible for the moratorium clarified by the Central bank. The financial institutes are also further instructed to not negatively affect the consumer’s credit score.

Key Highlights of the Announcement of RBI

  • All commercial banks include regional rural banks, small finance banks, and local area banks, co-operative banks, all-India Financial Institutions, and NBFCs re eligible to extend the moratorium.
  • Individual banks can frame policies and offer an exemption to all customers or a few who request for it.
  • The default of the payments during the months of March, April and May will not negatively impact the customer’s credit score.
  • The payment of the principal amount and interest for the moratorium period will be suspended.
  • All types of Loans with a fixed tenure are covered under this type of loan.
  • EMIs on goods like mobiles, fridge, TV, etc. are also covered under the moratorium.
  • Credit card dues are also included for the EMI moratorium.
  • Relief measures are applicable to the working capital loans taken by the businesses.

Aspects on which Clarity is Awaited

While the central bank’s announcement indicates that the tenor will be shifted, it is not clear how the deferred payments will be scheduled. So, this change may lead to an extension of three months after the original tenure.

It is not yet clarified if the borrowers will need to pay the additional interest on the accrued amount during the moratorium period. The clarity regarding the loans taken on credit cards is missing, while some assume that as the credit card dues are eligible the loans might as well be exempted from paying the EMI due’s.

To Claim or Not

The EMI moratorium doesn’t mean a concession or waiver of the due amount but just the payment is scheduled or extended for an additional 3 months. All the terms and conditions for the moratorium period stay intact meaning the interest for these months just gets accumulated. The customers who claim the offer will need to pay an added interest accrued for this moratorium period.

This measure is taken by RBI especially for those with irregular or unstable cash flow whose income can be affected during the lockdown period.

What Should Borrowers with Regular Salaries do?

While the EMI moratorium is a blessing for people with unstable income people with a stable income can avoid this if they can. EMI moratorium comes with a cost of added interest that would be unnecessary for those who can afford to pay the EMI dues. Especially for the loans with high-interest rates like credit card loans.

So the ideal approach to the confusion of claiming or not claiming the RBI EMI moratorium is checking if it’s necessary that you skip the due. If it’s an absolute necessity than avail the moratorium or else it’s better to avoid the EMI moratorium to skip the extra cost of added interest.