The RBI Moratorium
In response to the COVID-19 pandemic, the Reserve Bank of India announced some relief measures, including a 3 month moratorium on payments towards loan EMIs and credit card dues.
However, this RBI moratorium ended up sparking a fair amount of confusion and miscommunication among users on social media, especially on whether this was a 3 month waiver or only a deferment.
There was a clarification issued later, and one paragraph in the RBI circular reads as below:
In respect of all term loans (including agricultural term loans, retail and crop loans), 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) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020. 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.
It was also clarified that “instalments” would mean the following payments falling due from March 1, 2020 to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) Equated Monthly instalments; (iv) credit card dues.
So basically, nobody is granting any waiver here.
They are just deferring it for 3 months. This means if you do not make the payments now, the banks won’t report this to the bureaus, and it won’t affect your credit history. It will not be shown as a default on your part.
So what happens to EMIs and credit card dues?
If you have an upcoming EMI in April 2020, it will now be payable in July 2020 and so on. For credit card dues, you will not have to pay anything now, and will be billed in the June 2020 statement.
Isn’t that awesome?
Well, it isn’t, because interest will continue to accrue on the outstanding principal. Over a 3 month period, it can be quite a hefty sum depending on your existing amount due. In the case of credit cards, it can be as high as even 40-45%, so think twice before availing of this option.
Is this compulsory for all banks?
Nope, the RBI has only permitted banks to grant a moratorium. This is entirely discretionary and there is no compulsion on them to do so. Further, banks may choose to offer this facility to customers depending on some eligibility criteria. Check with your bank/s for specific details.
They may offer you an option to either
a) increase tenure, keep the EMI amount as-is
b) increase EMI amount, keep the tenure as-is
c) pay the accrued interest of these 3 months in June
So what was the big deal about this announcement?
This RBI moratorium is just a temporary relief, that’s all. Did you lose your job? Suffered a pay cut? Used up your savings for an emergency?
You now get a 3 month breather to avoid paying EMIs/credit card dues without consequences. That’s it. However, keep a plan ready to repay the entire amount after the 3 month moratorium ends.
If you can afford to make your EMI and credit card payments now, DO IT.
During his address on May 22, 2020, the RBI Governor announced an extension of this moratorium from June 1, 2020 to August 31, 2020.
