What 3 Months RBI’s moratorium on loan means for the borrowers ?

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 EMI holiday. Usually, such breaks are offered to help individuals facing temporary financial difficulties to plan their finances better. In banking terminology it is also called “Moratorium Holidays”, which is usually granted for a month. 

Which type of the loan will be considered and whether loan account will be slipped to NPA due to previous arrears ?

The three-month moratorium will permit banks to avoid a large onset of NPAs during the 21-day lockdown and keep their books healthy.The RBI has also allowed banks to restructure the working capital cycle for companies without worrying that these will have to be classified as NPA.

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In a move aimed at mitigating the impact of the corona-virus outbreak on businesses and employees in India, the Reserve Bank of India on Friday asked all banks and other lending institutions to allow a three-month moratorium on all kinds of loans.

The RBI also said that moratorium on term loans and deferment of interest payment would not result in asset classification downgrade. The rescheduling of payments will not qualify as a default for the purposes of supervisory reporting and reporting to credit information companies (CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries.

It means these periods will not be considered while calculating the CIBIL Credit Score for the borrowers. RBI further said that all lending institutions and banks had been allowed to defer interest on working capital repayments by three months. The RBI also allowed banks to reassess the working capital cycle and said that they won’t be treated as non-performing assets.

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With the RBI giving a green signal to defer loan repayment for three months, the ball is in the banks’ court to pass on the benefit to people, many of whom have been affected to due job loss and salary cuts in wake of COVID-19 crisis. Individual banks has to mandatory take the board approval in this regard.

This 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. If they had missed any EMI payment they were risking adverse action by banks which could have hit their credit score.