The Reserve Bank of India has declared a moratorium for bank loans for three months as India shut down to stop the spread of the novel coronavirus. Can you really skip the EMIs for the three months? It is wise to continue paying the EMIs if you have the wherewithal.
The central bank issued an order on March 27 allowing banks and non-banking financial institutions including microfinance firms to provide three-month moratorium on loans starting March 1. The financial institutions have been asked to prepare guidelines to provide the benefit to all deserving customers.
However, bear in mind that the liability for the three months will still incur interest. It will reduce your burden if you can manage to find the money to pay EMI even during the moratorium period. You will also be doing a service to less well-off counterparts by shouldering a part of the burden in this hour of crisis.
Analysts and experts tracking the sector said that simple interest rate would be calculated by banks for the three-month period in which loan repayment was due but was not paid under the moratorium. This would be added up into your EMIs at the end of three-month forbearance, raising your monthly bill.
So, if you're deferring payment of an EMI of, say Rs 1,000, and the bank is charging interest at the rate 10 per cent on outstanding, you will end up paying Rs 25 extra on each of the three EMIs that has not been paid during the moratorium. This additional interest may either be added up to all your future EMIs or your loan tenure could get extended at the same EMI level.
"Whether the customers will have to pay this additional interest in one go or will be allowed to get it adjusted as additional EMI is something that needs to be clarified by banks," said a financial sector analyst asking not to be named.
Even small and medium enterprises will do better if they continue repaying the loans because they could close the loans faster and avail of fresh loans if need be.
Fear not if you do not have the means to pay the EMIs. Your credit score will be protected as per the RBI announcement. Credit bureaus have been asked not to blacklist borrowers for their inability to repay EMIs from March 1 to May 31.
Banks and other financial institutions are charting a roadmap to put the moratorium in place. Bank branches are expected to come up with detailed circulars by March 30.
As of January-end, over Rs 13 lakh crore of housing loans and Rs 2 lakh crore of auto loans were outstanding, data with the Reserve bank of India shows.