Loan Moratorium suggested by RBI: Explained

By Rohit Malik

March 31, 2020

credit card dues, loan moratorium, rbi announcement

RBI on April 27, permitted (or suggested) banks to allow loan moratorium to their customers for period of three months.

RBI Loan moratorium

Here is the link to official notification (RBI).

This announcement has created confusion about credit card dues, personal loan EMIs, home loans etc.

So, to have a clear picture about what this loan moratorium means and how it is going to effect you, let’s have a deeper look into it.

What is loan moratorium?

Loan moratorium in normal terminology is a waiting period in loan term before making payments.

It is usually there in education loans and certain home loans, where there is a gap between disbursal of loan and when the EMI payment starts.

In current scenario, what RBI has done is little different. They have allowed banks to give a 3 months break to their customers for payment of EMI and dues.

The difference is that it is not structured into the loan itself, but a one time measure for the current scenario of lockdown.

Let’s dig deeper into the key points of RBI announcements

Important points about RBI announcements

  1. RBI has allowed the bank to offer moratorium of loan to its customers. So, it’s banks final decision about it.
  2. There is no break in accruing of interest during this time period. It means the interest of this duration will keep adding.
  3. The duration of this moratorium is 3 months as allowed by RBI.

What is RBI moratorium?

RBI moratorium is a part of COVID-19 — Regulatory Package. It is designed to reduce the burden of debt servicing on people and businesses.
Through this notification, RBI has allowed banks to give 3 months break to their customers from paying their loan dues.

Is RBI moratorium applicable for credit card dues?

This decision lies with individual banks. Till, March 31, as per new reports — HDFC Bank, Axis Bank, ICICI Bank & SBI has decided to extend this facility to all of their customers (including credit cards).
But it is advised not to avail this moratorium for credit card dues, because your interest will keep adding for the same duration. And credit card interest rates are highest among all the loan categories.

How to avail this loan moratorium?

The decision about offering your loan moratorium is decision of your bank.
Most of the banks will either contact you via email or SMS to offer you their solution. Then it will be your choice about availing it.
When you avail this moratorium, you also have to agree about updated terms and conditions of the loan and payments.

Will I get this moratorium automatically?

No, you will not get this moratorium automatically.
It will be communicated to you and you have to register yourself for the same.
When you avail for this moratorium, new payment terms of future will be updated and communicated to you.

Shall I avail this loan moratorium?

If you can pay your credit card and EMI dues in current scenario, by all means please pay them.
If you choose this break in payment, your EMI as well as interest of this period of 3 months will add up. This increased amount will be difficult to pay, once the new payment dates are there.

Who is eligible for RBI loan moratorium notification?

Every customer of bank is eligible for this moratorium package.
But the final decision rests with banks. It is not automatic.
Banks need to communicate with their customers and offer them this solution. Only when customers have accepted this offer, it will be applied to their loan account and credit cards.

Final Thoughts

For businesses who have no way of operating during this period of national lockdown, this moratorium brings a relief from financial burden.

This announcement is intended for providing relief of viable business aspects.

So, unless you have a financial burden due to lockdown (like if you are salaried or able to work from home), then you should not avail this facility.

The interest will keep adding and the financial burden will be significant later on.

About the author

Rohit Malik

Enter your text here...A yogi who like Finance and Technology. I have been in Indian Stock market for over 12 years now as financial analyst, portfolio manager, trader. Now, I focus on Yoga, Financial Education & Long term investing. 

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