The current situation of the country does not require any narrative. A medical emergency is going on in India, and the Prime Minister of the country, Shri Narendra Modi, has announced lockdown throughout the country till April 14.
Well, everything has come to a standstill in India except for the production and supply of essential items. In a situation like this, people who have availed loans are worried, which is natural as well.
Those who have availed loans are worried that in the event of a lockdown, they have not done any business. It means no revenue and profit as well. Therefore, how can they pay EMI?
Realizing the seriousness of this issue, the Central Government has found a solution. On the instructions of the Central Government, the Reserve Bank of India has suggested banks and NBFC companies to not take any EMI until June 2020.
Amid nationwide lockdown, this can be a relief to the borrowers who were facing difficulty in paying EMIs. Under this instruction by RBI, the banks and NBFCs will provide a moratorium of three months to all the borrowers having a term loan.
In addition to this, the RBI has also instructed the credit rating agencies such as CIBIL and Equifax that this moratorium must not impact the borrowers’ credit reports.
Let’s now take a look at how this is beneficial for small business owners with a running business loan account.
What types of loan accounts will benefit from this moratorium?
As per the circular issued by the RBI, banks and NBFCs have to provide a ban for three months for EMIs on term loans, which are due between March 1 and May 31, 2020. Now, these term loans include all the loans, such as home loans, vehicle loans, business loans, personal loans, and crop loans, as well as agricultural term loans. Notably, the bank has also specified that the credit card dues are also eligible for this ban. During these three months, the moratorium will be provided both on the principal as well as the interest repayment. Thus, the borrower is not required to pay the entire EMI during the period.
Will loan interest be waived?
Moratorium basically means there is no need to pay the EMI during the period, and no penalty will be charged either. It is not a concession but a delay of the EMI payment in order to provide some relief to the borrowers. As per the notification issued by the RBI, the repayment of the term loans will be shifted by three months. And the interest will continue to accrue on the outstanding amount of the loan during this period.
The RBI also stated that the moratorium period is provided to help all the borrowers across the country survive the liquidity issues during this time of coronavirus outbreak. Notably, the deferment is not any concession and will not change any terms and conditions of the term loan.
How will the borrowers be benefitted?
If a borrower avails the moratorium facility, it will not impact his credit history. Unlike salaried people, there are many other people who don’t have regular cash inflow. You can take the example of a businessman. Since there is a complete lockdown in the country, his business is also closed. And he is not generating revenue or making profits to pay the EMIs on time.
Besides, many salaried people may get pay after some cuts, delayed salary until the lockdown, or may even lose their job during the lockdown due to the Covid-19 pandemic. Therefore, the moratorium will benefit the borrowers who are facing liquidity problems as they can repay the loan after May 31.
Borrowers need to understand one thing here that the moratorium covers the payment of EMIs between March 1 and May 31. For example, if you have availed a business loan and you need to pay your EMI in the first week of the month. Now, if you have already paid the business loan EMI for the month of March, you will get benefit only for two months.
Do you need to pay EMI next month?
Well, it’s not that you now you don’t have to pay EMIs or credit card bill between March 1 and May 31 even if you wish to pay. The banks, NBFCs, and other lenders are still awaited to provide any clarity on this. But, the moratorium is an option. For borrowers who still want to pay their EMIs can continue to do so. Every loan lender is expected to provide clarity on this. They will develop their own regimen. The RBI has asked banks and other lenders to prepare board-approved policies for this moratorium on giving relief to all the borrowers.
Significantly, the RBI has rightly put this on all the lenders to decide the terms. However, it will be a task for the lenders to come out with their criteria for this moratorium period.
Who can offer Moratorium?
All the banks and financial institutions, including non-banking finance companies (NBFCs), finance companies, regional rural banks, finance banks, local area banks, and small finance banks have to provide moratorium period. So, if you have availed an unsecured business loan or home loan, you will be provided a moratorium period of three months.
Should you opt for it?
Well, as said above, the moratorium is not a kind of waiver. So, the interest will continue to accrue for the moratorium period. In simple words, the interest due for the three months will be added to the outstanding amount and, consequently, increase the burden on you when this period gets over. You will have to pay this amount in EMIs after this period. Therefore, we would suggest you opt for the period only if you are facing a liquidity crisis. Else, you are advised to continue to pay your EMIs regularly.
Conclusively, this a moratorium period and not an interest waiver period. Thus, you will be charged interest. So, people who can’t afford to pay EMIs during these three months should only opt for it. Otherwise, continue paying EMI to avoid extra burden.