The six-month loan moratorium announced by the Reserve Bank of India (RBI) to help those who suffered financial crisis due to COVID-19 pandemic will end on Monday.
The loan repayments have to start from September 1. Neither the state government nor any state-level bankers' committee has requested the Reserve Bank to extend the moratorium. It is unlikely that the RBI will offer any more extension as that could affect the financial health of the banks.
According to sources, the RBI decided not to extend the moratorium as it fears any such move could result in an increase in the number of defaulters.
The Supreme Court is hearing a petition that has challenged the interest and interest-on-interest being levied on loans during the moratorium period. It will next hear the petition on September 1. The court has directed the Centre to make its stand on the moratorium clear by the next hearing.
For those who opted for the moratorium, the repayment period will increase by six. The interest for the six-month moratorium period will also be added to the outstanding loan amount. As a result, there will be an interest on the interest, which will result in an increase in the monthly repayment amount. The Reserve Bank of India (RBI) has told the Supreme Court that the interest amount alone in the country during the moratorium period is estimated to be about Rs 2 lakh crore.
About 75% of bank customers in Kerala are still struggling to recover from the crisis caused by COVID and they are clueless about how to start repaying the loans from next month. Many businesspersons are not even in a position to pay their electricity bills.
What should customers do
• Start repaying the loan from September 1. Find out the revised monthly repayment amount from the bank.
• If possible, clear the interest accrued during the moratorium period. This will ensure your instalment amount doesn’t increase and that you don’t pay interest-on-interest.
• Some banks have decided to treat the interest amount during the moratorium as another loan repayable in six months. Enquire if this facility is available at your bank branch.
• Many banks have allowed the moratorium only after receiving an application from customers. Check with the bank if another application is needed to resume/restructure the loan repayment.
• Those who did not opt for the moratorium have nothing to do. They should continue repayment as usual.
• The credit score will not be affected due to non-payment of loan during the moratorium period. However, any default from September will affect the score. This may become a hurdle in obtaining new loans in future.
