Implications moratorium on emi holders and loan availers

A moratorium is a legal authorization given to debtors to postpone the payments of the debt. Due to the financial instability created in the market due to the sudden rise of Covid-19, RBI has announced a three month moratorium. - This means that banks can allow their customers to not pay the dues of their monthly installments for a three month period, starting from March 1, 2020 to May 31, 2020. -It is to be noted that even though RBI has allowed banks to grant the moratorium period to its customers on all term loans, the implementation of the same is still dependent on the respective boards of the banks, if they decide to go ahead with the same. -These installments will include EMIs, credit card dues, principle and interest payment and bullet repayment. -All commercial banks, including small finance banks, local area banks, regional rural banks, cooperative banks, All Indian Financial Institutions and NBFCs are allowed to grant this moratorium to their customers. -Credit care holders have also been exempted from paying dues during this period. Normally, if  any loan repayments are due for over 90 days, they are declared to be non performing assets, but this is not the case here. -During the moratorium, the credit score of the borrower will not be effected. -Customers must note that this is a temporary deferral, and the burden of the EMI payment has just been postponed. -The RBI has also mentioned that interest shall continue to accrue on the outstanding portion of the loan during this moratorium period. It will, however, not impact the credit score of the borrower in any way. -This however, does not mean that payments have been waived off or suspended. They have simply been deferred for the time being. All EMI payments shall restart after 3 months. -As suggested by the statement of RBI, it is clear that this moratorium is applicable on all term loans, including personal, home, educational, gold loans. Any loan with a fixed tenure is covered under this. The modalities and procedures for the interest payment shall be announced later. -The RBI has also cut down the Repo rate and the reverse repo rate. The repo rate, now sits at 4.4%, which will be a setback for the Fixed Deposit owners. -This will impact their interest income, and impact especially senior citizens who depend on this income for survival. -It is advisable to invest in small saving schemes, so as to not lose the income entirely. There are various policies such as the National Saving Certificates, Post Office Term Deposit, Kisan Vikas Patra etc. that also earn more interest than FD.

All these are mere speculations and no practical presumptions are possible and intended to drive out the fears in borrowers, and to me, it appears that it is more favorable to institutions than clients, as they can postpone showing NPA during this financial year and by next year they cam compensate loss if any out of this present situation of pandemic spread.  Guessing such implications in a legal forum is just an academic exercise and not useful to anyone..

Please mark the words RBI used in the press release. They said it is left to the discretion of the individual banks, which means each bank has to take a decision in this regard and it is not a dictate from RBI. Therefore, Borrowers have to wait for the specific communique from the bank where they took the loan.

 

Further, what I feel is that the payment of EMI is suspended for three months which exactly means what is mentioned. The borrower need not pay the instalments for March, April and May and that is all. Interest shall be calculated as per applicable rate on the liability outstanding for these three months. The only difference is that in the normal course if the EMI is not paid, banks charge penal interest for the overdue amount till it is paid.  In this particular case, no such overdue interest shall be charged for these three EMIs. The borrower has to resume payment of EMIs after three months and accordingly the overall payment of loan shall be extended by three months.  This is my understanding.  

Yes, the RBI's pronouncement need not be and should not be taken as the magic wand.

The experts above have given the answers in detail.

Hope this would be sufficient to the author's all queries.

In fact these things were announced and entire details were published through news and TV media and it was in news for the last two days. 

Thank you all! 

 

You are welcome for your appreciations