RBI extends moratorium on loan again: In his third such address since the coronavirus-induced lockdown began on March 25, Reserve Bank of India (RBI) Governor Shaktikanta Das today cut the repo rate by 40 basis points to 4% and also extended a moratorium on all term loans by another 3 months. 

The earlier three-month moratorium on the loan EMIs was ending on May 31, 2020. This makes it a total of six months moratorium on loan EMIs starting from March 1, 2020.

The extension of a three-month moratorium on repayment of term loans by borrowers means that they would not have to pay the loan EMI installments during the moratorium period.

The extension will provide relief to many individuals, especially the self-employed, as they would have found it difficult to service their loans such as car loans, home loans, etc. due to loss of income during the lockdown period from March 25, 2020. Missing an EMI payment would mean risking adverse action by banks which can adversely impact one’s credit score.

After the lockdown began, Das had slashed the benchmark interest rate (repo rate) by a massive 75 basis points and also announced a three-month moratorium to be given by banks to provide relief to borrowers whose income has been hit due to the lockdown. The loan moratorium has now been extended till August 31 for 6 months.

The RBI has further clarified that such treatment will not lead to changes in the terms and conditions of the loan agreements which is the same as announced in the previous moratorium period.

Under normal circumstances, if the loan repayment is deferred then the borrower’s credit history and risk classification of the loan can be adversely impacted. However, in the case of this moratorium the borrower’s credit rating will not be impacted in any way, as per the central bank’s previous statement.

As per RBI rules, any default payments have to be recognized within 30 days and these accounts are to be classified as special mention accounts.

As per the debt servicing relief announced earlier by RBI, interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period. Deferred installments under the moratorium will include the following payments falling due from March 1, 2020, to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) Equated Monthly installments; (iv) credit card dues. It is likely these will continue for the extended period of the EMI moratorium.

RBI in a press conference dated March 27, 2020, announced that all banks, housing finance companies (HFCs) and NBFCs have been permitted to allow a moratorium of 3 months on repayment of term loans outstanding on March 1, 2020.

What does moratorium on loan mean?
Moratorium period refers to the period of time during which you do not have to pay an EMI on the loan taken. This period is also known as the EMI holiday. Usually, such breaks are offered to help individuals facing temporary financial difficulties to plan their finances better.