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In the wake of the COVID-19 or the Novel Coronavirus outbreak and the financial jolt that it may have caused for many, the Reserve Bank of India (RBI), in an attempt to provide some relief to those struggling with liquidity, announced some relief, on March 27, 2020, in the form of a moratorium on term loans for three months, ending on May 31, 2020. On May 22, the RBI has extended this moratorium further by another three months, i.e., June, July and August, 2020. This makes it a total of six months for the EMI moratorium. This applies on the payment of monthly installments of all term loans outstanding as on March 1, 2020. This applies to home loans, as well.
What is moratorium?
Moratorium is the act of postponing or deferring an activity and should not be confused with a waiver. Here are some frequently asked questions to understand moratorium, its benefits and implications:
Impact on borrowers
1. What does a 6-month moratorium on repayment mean, for home loan borrowers?
A six-month moratorium allows you to defer your EMI payments by a period of three months. This should not be mistaken for a total waiver. If your instalments were due between March 1, 2020 and August 31, 2020, the RBI has now permitted your bank to allow you to postpone the repayment. However, your bank is not obliged to do so. It may or may not allow it, or different banks may have their own criteria for establishing who should be allowed an EMI holiday for these six months. However, banks that were already allowing the initial three-month moratorium may continue to do so.
2. Will I have to pay extra as interest, if I choose the moratorium?
Yes, you will be paying more as interest, if you choose to avail of the moratorium. Let us see how that works.
Suppose you had taken a home loan of Rs 70 lakhs at 9% interest for a period of 20 years from Allahabad Bank. The monthly installment in this case comes to Rs 64,400. In case you choose to take the moratorium for three months, the interest will continue to accrue which comes to Rs 1,58,684. This will be added to your overall liability.
Principal: Rs 70,00,000
Interest Payable: Rs 82,99,365
Interest for moratorium period: Rs 1,58,684
Total amount payable: Rs 1,54,58,049
Total amount payable if moratorium not availed: Rs 1,51,15,396
While you will be paying a higher amount when you repay the EMIs, the moratorium on housing EMIs will help you rearrange your finances in the short-term. On the other hand, if you do not opt for the moratorium, you would end up saving Rs 3,42,653.
3. Will moratorium be applicable on principal repayment, interest repayment or both?
The moratorium will be applicable to both principal and interest, that is wherever you are paying either EMIs or Pre EMIs. The interest, at the applicable interest rate, shall keep on accruing on the outstanding portion of the loan during the moratorium period.
4.Will opting for the moratorium affect my credit score?
No, the advantage of seeking this moratorium is that it will not show up as a default in your credit score. Further clarifications are awaited from financial institutions.
5. Is there any penalty that will be charged
No, neither will there be any penalty charged nor will your credit score be compromised during this tenure.
6. What if I have multiple loans running?
The moratorium facility will be extended to all your term loans. However, you must check with your respective banks, whether they would want you to opt-in or opt-out of this facility.
7. What will be the effect of a 6-month moratorium on the self-employed?
In light of the example given above, you could say that the extra interest accrued is a small price to pay, given that some self-employed borrowers may find it tough to repay, with most businesses suffering losses due to the lockdown. In the six months, a self-employed businessman/woman can divert this EMI amount and use it elsewhere. Hence, there is no immediate worry of losing out on one’s liquidity. After a period of three months, the borrower can go back to paying his monthly dues with the knowledge that he/she will be now repaying a higher amount.
8. What will be the impact of a 6-month moratorium on new borrowers?
It will have the same effect, as on any other section. You will be able to defer your payments by three months. However, you should know that since it is not an interest waiver, you are not getting any discount. If you have the financial appetite to keep repaying, you must do so. This will help you save some money. However, if you are suffering because COVID-19 has taken a toll on your finances, you should go ahead and avail of the moratorium, if your bank is offering the same.
Guidelines by banks and financial lenders
9. Is the moratorium meant for only nationalised banks, or all banks in general, including co-operative banks?
All lending institutions that is all commercial banks, including regional rural banks, small finance banks and local area banks, co-operative banks, all-India financial institutions, and NBFCs including housing finance companies, have been permitted to allow the moratorium.
10. Is this a loan waiver (for three months) or a deferment?
Note that the RBI has only agreed for a deferment of the term loan. There is no waiver or discount or concession. Deferment also accrues charges.
11. What if I have already paid my EMI for the month of March 2020?
Most borrowers give the Electronic Clearing Service (ECS) mandate for the first week of a month. Therefore, for many an EMI that was due in March, would already have been paid. For such borrowers, EMIs can be deferred by two months only – that is, for April and May, 2020 (in case of three-month moratorium).
12. What if my EMI was due on March 28, 2020?
You may want to check with your respective bank about refunds. For example, ICICI Bank has said that it may consider refunding EMI for March if it was debited post March 27, 2020. ICICI Bank guidelines read as follows, “EMI paid prior to Mar 27, 2020 will not be refunded. However, if any EMI is debited after Mar 27, 2020 and the borrower customer opts for moratorium then such EMI may be considered for refund at the request of the borrower/ customer.”
13. Is moratorium facility available for NRI borrowers?
Yes, the moratorium facility is applicable for NRI customers as well.
14. Will the banks automatically apply the moratorium, or does the borrower have to approach the bank?
Individual banks will come up with their own criteria. Experts opine that since the RBI has used the word ‘permitted’ and not directed, most people may have to request their banks to grant them the moratorium. State Bank of India however has already allowed all borrowers to avail of the moratorium, irrespective of whether they need it or not. There is clarity awaited from other banks. RBI has asked banks to prepare policies approved by their board to provide relief to all eligible borrowers.
15. Is the moratorium applicable to individuals, or corporates too?
As per the RBI, the moratorium is permitted for all but banks can come up with their own parameters of determining eligibility. This confirmation and set of guidelines is awaited from various banks and we will update this article accordingly.
16. Does it apply to those who are getting full salary during the lockdown period?
The economic impact of the COVID-19 may apply to all – both, salaried, as well as the self-employed. For the salaried, the economic impact may be in the form of pay-cuts, delay in salary payments or even layoffs. Therefore, the RBI has taken this step in anticipation, to ease the financial stress of many. More details are awaited from the individual banks. Eligibility criteria will be announced soon.
17. What can I do if my bank does not offer a moratorium?
As already stated, it is totally up to the banks to offer the moratorium to you. In RBI’s words, “Lending institutions shall frame board-approved policies for providing relief to all eligible borrowers, inter alia, including the objective criteria for considering reliefs and disclosed in public domain.” Note the word ‘objective’. It is not on a subjective basis but on objective grounds that your bank will establish a criteria to roll out this moratorium.
If the bank doesn’t offer this relief, you may run the risk of losing your property, if you do not pay your EMIs.
Commonly asked questions
18. Is the home loan moratorium a new concept?
Moratorium is not a new concept. Most borrowers who buy an under-construction property ask for a moratorium period. Agreeable banks usually offer up to three years of moratorium. However, in such cases, banks generally insist that the borrower pay the interest during the moratorium period, also called pre-EMI interest. After a period of three years, the full EMI is paid by the borrower. In the case of a ready-to-move-in property, banks typically give a moratorium of three to six months.
19. How will lending institutions benefit with this move?
Note that lending institutions are not waiving the EMI or the interest. They are simply allowing you to defer your payment for which interest is applicable and accruing. Lenders will profit from this interest. Take for example, SBI’s term loan book which is big. The bank’s chairman Rajnish Kumar has said that the moratorium move will bring in more. Talking to the media, he said, “Our term loan book is fairly large and I think Rs 2-2.5 trillion gets paid every year, so for three months it would be Rs 50,000-60,000 crores.”
20. What are some of the other term loans?
Term loans are secured loans (at times unsecured) and the borrower must repay the loan with interest, within a definite and specified period of time. Some examples are agricultural term loans, retail loans, crop loans, vehicle loans, education loans, personal loans, etc.
Please note that if you opt for the moratorium, interest will continue to accrue. Here’s an example to help you.
Dev Sharma availed of a housing loan on March 1, 2020 amounting to Rs 1 crore with loan tenure of 236 months. If Sharma wants to avail of a moratorium on the instalment of Rs 90,521.00 which is due on April 1, 2020, then, the interest for the month of March amounting to Rs 75,000 will be added to the principal amount and the revised opening principal amount on April 1, 2020 will become Rs 10,075,000. The interest will be computed on the revised principal. Similarly, the interest for the month of April which is payable on May 1, 2020 of Rs 75,562 will be added to the opening principal on May 01, 2020, which will be Rs 10,150,562. The interest will be computed on the revised principal. In this case, Sharma’s tenure will increase from 236 months to 249 months, considering the unchanged rate of interest and instalment amount during this period.
Hence, if you are not financially stressed at this point of time, go ahead and pay your EMIs. This will save you some money.
Bank rules for availing moratorium
Most banks have taken to Twitter to announce their guidelines about the moratorium period.
|Particular||Course of action|
|Customer who do not want to defer recovery of instalments /EMI||No action is required. They may continue to pay in the usual course.|
|Customer who wants to defer recovery of instalments/EMI||NACH – Where collections of such instalment / EMI is effected through National Automated Clearing House (NACH), please submit an Application (Annexure-I) along with mandate for NACH Extension-(Annexure-II) to stop NACH for these instalments through an e-mail to the specified email ID (Annexure-III).|
Standing Instructions (SI) – Please submit an Application (Annexure-I) through an email to the specified email ID (Annexure-III).
|Customers who want refund of the instalment/EMI already paid||Please submit an Application (Annexure-I) through an email to the specified mail ID (Annexure-III)|
For details, visit https://www.sbi.co.in/stopemi
Punjab and Sind Bank
|Moratorium on All Term Loans|
Bank shall grant a moratorium of three months on payment of instalments (including principal, interest, bullet repayment, EMI) falling due between March 1, 2020 and May 31, 2020 in respect of all term loans. The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period. Standing Instructions (SIM) will be deferred by the Bank upto May 31, 2020. However, if the borrower is willing to pay the installment, the same to be recovered.
For more details, visit: https://www.psbindia.com/document/Advisory.pdf
|Particular||Course of action|
|Customer who wants to defer recovery of instalments/EMI||The scheme will be applicable to all standard term loans under Housing Loan, Loan against Property, Auto Loan, Education Loan & Personal Loan as on March 1, 2020. Wherever the March 2020 instalment has already been paid by the borrower, the relief would be applicable for the EMI payable in April 2020 and May 2020.|
|Customer who do not want to defer recovery of instalments /EMI||Customer may opt out from EMI moratorium by writing email to email@example.com latest by April 3, 2020.|
The E-mail should mention the following details
Email Subject should be Loan Account number
In the mail body please mention the following details
Name of the borrower.
Loan account number.
Customer to mention in the email that “I wish to opt out from the instalment moratorium facility offered by the bank, hence kindly deposit my EMI by way of ECS/SI”
For more details, visit: https://www.idbibank.in/faq-covid-installment.asp
|Particulars||Course of action|
|Customer who wants to defer recovery of instalments/EMI||All HDFC Bank customers who have availed of retail instalment loan or any other retail credit facilities prior to 1st March 2020 are eligible.|
Customers having overdues prior to 1st March 2020 may also opt for the moratorium, and their requests shall be considered by the bank based on its merits.
Call on this number and follow the instructions – 022-50042333, 022-50042211
|Customer who do not want to defer recovery of instalments /EMI||If you do not want the EMI moratorium, no further action is required from your side.|
For more details, visit: https://www.hdfcbank.com/personal/pay/payment-solutions/loan-repayment
|Particulars||Course of action|
|Customer who wants to defer recovery of instalments/EMI||In respect of all other types of facilities, borrower(s)/customer(s) will need to specifically OPT-IN for availing of Moratorium and postponement of payments falling due for payment between the period beginning Mar 01 until May 31, 2020. You can go here to Opt-in.|
|Customers who do want to defer recovery of instalments/EMI||Those who do not wish to avail of the Moratorium, borrower(s) / customer(s) may OPT-OUT from the Moratorium by clicking on the link shared with the borrower(s) / customer(s) by the Bank through (i) SMS or (ii) e-mail. You may also visit ICICI Bank’s website www.icicibank.com failing which it will be deemed that borrower/ customer has opted for Moratorium.|
All the other banks have also allowed the moratorium which includes Canara Bank, Andhra Bank, UCO Bank, Indian Bank, Syndicate Bank, Indian Overseas Bank, Bank of Baroda, Central Bank of India, Oriental Bank of Commerce, Punjab National Bank, Bank of India, Allahabad Bank, Union Bank of India, Corporation Bank.
Note: Some banks want customers to opt-out of the moratorium option if they do not wish to avail of the moratorium. Some others do not want you to take any action, if you want to continue paying your EMIs. It is advisable that you check with your bank for details published online.
Will availing moratorium mean I will have to pay more?
Yes, availing of the moratorium will mean that your EMI burden will increase.
Can I take a loan now and avail a moratorium?
No, you cannot. The moratorium permission is only for loans that existed as of March, 2020.
Who will benefit from the RBI’s three-month moratorium?
Anyone who is in financial difficulty right now, will find it beneficial. Even if the EMI burden will increase thereafter, it helps financially-stressed families to tide over the immediate economic impact of COVID-19.