More clarity emerges on loan moratorium as banks start operationalising policies: Key FAQs

Since interest will continue to accrue on the outstanding portion of the term loans during the moratorium period, they will be added in the loan amount outstanding

Kumar Shankar Roy Mar 31, 2020

Home loan ratesLast week, the RBI announced a 3-month moratorium for term loans. We at RupeeIQ had compiled a quick set of commonly asked questions and answers on that day. With a few banks now sending messages and emails as they operationalise the moratorium policy, there is more clarity on how they work. Here is the next set of FAQs that will help you understand how the loan moratorium works in reality. Do note that the banks that have announced their own rules have done it for housing loan, loan against property, auto/vehicle loan, education loan & personal loan etc. So, we will focus on them mostly. We have also answered a few credit card related queries in the last part.

Q: What is the exact nature of relief RBI has provided for retail loans under COVID 19- regulatory package?

A: RBI has permitted Bank to grant a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020.

Hence, your bank will not raise the installment demand during this period. Borrowers are not required to pay the installment during the period.

Q: If installment is not paid in this moratorium, how is it adjusted?

A: Accordingly the residual tenure of loan repayment schedule will be extended by three months. For instance if your last loan EMI was supposed to be in March 2021, now it will end June 2021.

Q: Will interest be charged during moratorium?

A: Moratorium of three months on payment of all installments falling due between March 1, 2020 and May 31, 2020 will be offered and installment demand will not be raised to the loan account of the borrower.

During the said moratorium period, interest will continue to accrue on the outstanding portion of the loan.

The interest accrued will be added to the outstanding loan amount.

Q: What is the process to be followed for getting the benefit of installment moratorium?

A: Some banks so far are uniformly applying the moratorium to all standard term loans under housing loan, loan against property, auto loan, education loan and personal loan as on March 1, 2020.

There is no separate request required from the borrower. Atleast, a few banks that have operationalised this did not ask borrowers to make a request.

Q: I have already paid the March 2020 installment on 10th. How will relief happen for me?

A: For borrowers who have already paid the March 2020 installment, the relief would be applicable for the EMI payable in April 2020 and May 2020.

Q: If I take loan moratorium, will my EMI change?

A: Some banks have made it clear. Since interest will continue to accrue on the outstanding portion of the term loans during the moratorium period, they will be added in the loan amount outstanding which might result in marginal change in EMI. So, your EMI may rise.

Q: What if my cash flow is not impacted on account of Covid-19? So, I do not intend to avail moratorium and want to continue to make the EMI payment as in past…

A: In this case, upon receiving message from the bank or lender, customers may opt out from EMI moratorium. You will have to write an email to the bank. Find out the email address for your bank.

In that email, customers should mention that: I wish to opt out from the installment moratorium facility offered by the bank, hence kindly deduct the EMI as in the past.

Q: What will happen to the accounts which are delinquent/ in default/overdue on or before March 1, 2020?

A: The relief is extended for installments of loan which are due only between March 1, 2020 to May 31, 2020.

Hence, the installments/other amount overdue on or before March 1, 2020 in any of the loan account will have to be paid before March 31, 2020 in order to avoid penal charges, down-gradation of account and slippage in credit rating.

Q: How does the moratorium affect my credit card payments?

A: The moratorium does not apply to credit card interest charges. If you have Rs 1 lakh due as on March 3, 2020 and you take advantage of the moratorium till May 31, 2020, the dues payable on June 3, 2020 could be as high as Rs 1,15,000 (Rs 1,00,000 due amount + Rs 15,000 interest amount and other charges).

So, you should continue paying your total due amount within the due date to avoid interest charges, which can be as high as 42% compounding annual interest rate.

Q: What if I pay minimum credit card dues during moratorium?

A: If you pay your minimum dues, you will avoid late fees but will still be levied interest charges on the outstanding amount.

Q: In case of loans, tenure is being increased by three months if I opt for moratorium. In case of credit card dues, what happens?

A: Opting for the 3-month deferment option allows you to delay the payment of your credit card dues till May 31, 2020.

You will be expected to pay your outstanding amount and the interest charges on the due date after May 31, 2020 to avoid late fees and impact on credit score.

Kumar Shankar Roy

Kumar Shankar Roy is contributing editor with RupeeIQ. Kumar is a financial journalist, with a functional experience of 15 years. He tracks mutual funds, insurance, pension, PMS, fixed income/debt and alternative investments markets closely. He has worked for The Times of India, The Hindu Business Line, Deccan Chronicle Group, DNA, and Value Research, among others, across different cities in India. He is deeply interested in marrying data insights with actionable opinion. He can be contacted at [email protected].

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