In a huge relief to individuals and companies reeling under financial stress after the nationwide lockdown to combat the spread of Covid-19, the Reserve Bank of India on Friday allowed lenders to provide a three-month deferment on payments of Equated Monthly Instalments (EMIs) for all term loans that were outstanding as on March 1, 2020.
Notably, terms loans include retail loans like home loans, automobile loans, personal loans, credit card dues, education loans, besides farm loans and crop loans that have a fixed tenure.
The moratorium will apply for loan instalments falling between March 1, 2020, and May 31, 2020. The RBI also announced deferment of interest payment on working capital loans by three months.
Also, in an unprecedented move, the RBI on Friday cut the repo rate, the rate at which the RBI lends short-term funds to banks, by 75 basis points to 4.4 per cent, while reducing the reverse repo rate by 90 basis points to four per cent.
The RBI relief on loans will significantly ease pressure on both lenders and borrowers as availing such a moratorium would not lead to a downgrade in an individual’s credit rating/credit score and also not affect the classification of the loan on the banks’ books (and will not require any provisioning). The RBI said availing the moratorium does not entail any changes in the existing terms and conditions of the loan.
So if you don’t pay your EMIs in these three months, the banks won’t term your account a non-performing asset (NPA).
However, it must be understood that this is a temporary deferral and the interest amount wil continue to accrue on the outstanding portion of the term loans even in the moratorium period. The RBI asked lending institutions to frame board-approved polices for providing these reliefs to all eligible borrowers.
In a video address, RBI governor Shaktikanta Das said: “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), cooperative banks, all-India financial institutions, and NBFCs (including housing finance companies) (“lending institutions”) are permitted to grant a moratorium of three months on the payment of all instalments falling due between March 1, 2020 and May 31, 2020. The repayment schedule for such loans 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.”
Ramesh Nair, CEO and country head of JLL India, said: “The injected liquidity of Rs 3.74 lakh crores along with the three-month moratorium on all term loans by financial institutions will alleviate short-term liquidity concerns and help developers as well as home buyers survive in these uncertain times. It is a big relief for developers and homebuyers to help them mitigate the challenges faced by them currently.”