What is a moratorium on loans?
Simply put, a moratorium is an extension, not a waiver.
The banking regulator has allowed all banks, including regional, small finance, local area, co-operative banks and all India financial institutions; along with non-banking financial services, which include housing finance companies and micro finance institutions; to offer a three month extension on payment of loans.
Which loans does it include?
RBI has said that this provision extends to all term loans
that financial institutions have provided to customers. Any borrowing that has a fixed payment schedule over a defined period can be called a term loan, which also includes your EMIs. These including housing, auto, personal loans, capex loans for companies, consumer durable loans. It also includes agricultural term loans, retail and crop loans for farmers.
The RBI in its circular released in the evening has clarified that it will also include credit card dues.
Will you be charged a higher interest rate if you take this extension?
The banking regulator has clearly said that if you don’t pay your EMIs or credit card bills and choose to extend the loan by three months, you will end up paying interest cost for these three months
on that loan.
How does this help banks?
With undue duress in the banking ecosystem at this time, it will help avoid retail non- perfoming assets (NPAs). Mostly, banks have been struggling with corporate NPAs but with a nation-wide lockdown, workers will struggle to pay their loans, significantly increasing the NPAs on the bank’s books.
What does Forbes India suggest?
If you can afford to pay your EMIs and credit card bills, it’s wiser to pay them off as usual.
You don’t want to pay extra interest cost on your existing loan. If your EMI is Rs 10,000 per month with a 9% interest cost, you would have to pay 9% for those three months on a compounding basis additionally on your loan. It’s safer to avoid paying more from your pocket in these tough times. After all, a nickel saved is a nickel gained.