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. Some of the common doubt answered.
* Is the loan holiday applicable only to bank loans?
No. The three-month moratorium on loan repayment is applicable to all lenders including banks, regional rural banks, cooperative banks, non-banking financial companies, small finance banks, housing finance companies and microfinance companies.
* Does the moratorium mean waiving the EMIs or interest for three months?
All loan repayment instalments will get a three month holiday from March 1. The moratorium is applicable to term loans, gold loans and other single repayment loans and credit card repayment. Neither the principal amount nor the interest is done away with during the period. Borrowers are just given three months to repay. It would mean that the term of the loans will be extended by three months.
* Which types of loans are covered under the moratorium?
All term loans are covered. Home loans, vehicle loans, personal loans, education loans, business loans, industry loans and agricultural loans get three months to pay. You can avail of the moratorium even if you have given a standing instruction in the bank to draw the EMI straight from your account.
* What should a borrower do to make him eligible for the moratorium?
The Reserve Bank of India has allowed the financial institutions to offer a three-month moratorium. The central bank has not ordered the financial institutions to do so. The RBI said that banks and financial institutions should implement a policy as decided by their respective boards. They are, however, bound by the RBI guidelines.
Each bank will take a decision separately. They may ask the borrower to apply for a moratorium. The request for moratorium could perhaps be sent as a text message. Those who do not make a request may have to repay the EMIs as usual.
* Will the non-payment of EMIs for three months be considered as default? Will it affect the borrower’s credit score?
Failing to repay EMI during a loan holiday is not defaulting. The Reserve Bank has made it clear that it intends to help account holders in the time of Covid-19 by offering a moratorium on loan repayment and suspending interest payment. Banks cannot change the loan terms because a borrower could not pay the EMI in this period. Non-repayment will not lead to proceedings like moving the loan to non-performing assets after three consecutive months of non-repayment. Neither will credit information agencies like the CIBIL take it into account while preparing credit scores.
* Will the bank cut the margins for cash credit and overdraft facilities?
The Reserve Bank has directed the banks to reduce the margins for borrowers. Usually, an easing of margin will impact the asset value of the consumer. Now the Reserve Bank has made it clear that banks can think about easing margins without impacting the credit scores.
* Can banks allow extra cash credit or overdraft loans?
The Reserve Bank has said that financial institutions can re-evaluate the working capital cycle and offer higher loans.
(The writer is a senior officer at a public sector bank. Opinions are personal.)