Days after the Reserve Bank of India (RBI) allowed a three-month moratorium on term loans, both public sector and private banks have announced that they will be extending the same to their customers. As of Wednesday afternoon, all public sector banks (SBI, PNB, BOI, Canara, etc) and some private banks such as ICICI, Kotak Mahindra Bank, HDFC Bank have confirmed that they will be offering deferment of EMIs.
The idea behind RBI’s announcement was to help those who may have a loss of income amid the coronavirus pandemic and hence will not be able to repay their EMIs for term loans.
A term loan is any loan that is paid in regular instalments over a period of time, and includes personal loans, education loans, vehicle loans and more.
However, there is confusion over what the moratorium means to depositors, what loans are included, and if and how they stand to benefit from the same.
Here’s everything you need to know about the three-month moratorium:
What all loans are covered?
The moratorium is applicable on home loans, car loans, personal loans, agricultural term loans, crop loans and consumer durable loans taken from a bank or non-banking financial company (NBFC) that were due as of March 1, 2020.
Credit card dues are also included in the moratorium.
Some banks, such as HDFC Bank, are allowing customers with overdues prior to March 1, 2020 to also opt for the moratorium. HDFC Bank has said that these requests will be considered based on their merits.
Am I being exempted or do I have to pay later?
The moratorium does not mean you don’t have to pay your EMI. It simply means that your bank or NFBC is letting you defer the payment by three months.
Opting for the moratorium means that the duration of the loan will be extended by three months. According to the Indian Banks Association, the original repayment period of term loans will be extended by 90 days. This means that if a loan was maturing on March 1, 2025, it will now mature on June 1, 2025 instead.
Will it be automatically deferred or rescheduled?
No. You have to opt for it.
This is especially if you have given standing instructions to your bank to deduct the EMI amount. You will have to inform the bank not to deduct the EMI. You can even do this online on the bank's website.
But if you don’t want the moratorium, you don’t have to do anything; the bank will continue debiting the amount as usual.
If you do not have a standing instruction/auto debit, for example for credit card dues that you pay every month, you can either choose to pay and if you don’t, your bank will automatically take that as you opting for the moratorium.
If your EMI for March has already been debited, but you want to moratorium, a few banks such as SBI and HDFC Bank are offering a refund. Contact your bank, or check the website for the same.
Standing instruction or not, it is advisable to call your bank or visit the bank's website and understand what its policy for the moratorium is.
Does it apply to principal amount or interest? Will interest be charged?
Yes, interest will be charged. The moratorium is a deferment of payment and not a waiver of interest.
If you avail the moratorium and do not pay for the next three months, interest will continue to accrue on the principal outstanding for three months at the contracted rate of the loan.
For example, say you’re paying Rs 1,000 as interest every month. In case you opt for the 3-month moratorium, you will not need to pay the EMI but at the end of the third month, you will still need to pay the interest for three months, which will be Rs 3,030.10.
For credit card dues, if you opt for the moratorium, you are required to pay the minimum amount due or total outstanding along with the accrued interest charges on the due date after May 31, 2020. Interest will be levied as per the contracted rate on the card.
For term loans where the repayment has not commenced, the interest portion for three months alone needs to be considered.
Is it better to defer or to pay now?
Several financial experts and in fact most banks themselves recommend that if you can afford to pay your EMIs, please do so.
This provision is for the benefit of those who are currently facing a disruption in cash flow due to a job loss or income cut.
If you do opt for the moratorium, one of the advantages is that your credit score or your credit history will not be impacted. This is important because banks always look at your credit score before offering you a loan.
Several banks such as SBI, HDFC Bank, Kotak Mahindra Bank, among others have put out FAQs relating to their specific bank policy. For further details, it is advisable to contact your bank branch or relationship manager.