FAQS on RBI Moratorium on Loans

The coronavirus pandemic has devastated economies across the globe. The unemployment rate in the United States rose as high as 25%, and the EU is facing its worst recession, with its economy expected to decline by 7.4%, according to projections released by the European Commission. The situation is not much better in India. The lockdown and other restrictions have led to lower consumption and sluggish production. As a result, many have lost their jobs, and many others are uncertain about their financial future.

One of the steps taken by the Reserve Bank of India to ease economic pressure on people is the introduction of a moratorium. Here are the FAQs for RBI’s moratorium on loans during the COVID-19 lockdown.

1. What Does Moratorium Mean?

Moratorium means a period for which the installments for loan repayment need not be paid. Initially, the moratorium was only for installments falling between March 1, 2020, and May 31, 2020. But it has been then extended from June 1, 2020, to August 31, 2020, according to the RBI guidelines issued on May 23, 2020. It is important to remember that it is not a waiver of loan repayments. During the moratorium period, the interest would keep on adding to the principal.

2. On Which Loans is the Moratorium Applicable?

Financial institutions can provide a moratorium on all types of term loans. You can opt for a moratorium period in case of a home loan, vehicle loan, personal loan, loan against property, and education loan.

Will All Banks Provide Moratorium?

The moratorium is not an instruction by the RBI. It has allowed all co-operative banks, commercial banks, NBFCs, and the All-India Financial Institution to provide moratorium to their customers. But the final decision rests with the bank itself.

3. Who Should Opt for Moratorium?

Opting for a moratorium is not compulsory. If you can afford to pay the EMIs, it is better not to take the moratorium. This is because the interest keeps adding up, leading to you having to pay a larger amount in the long run. This just increases the pressure on the customer. The tenure of the loan can also get increased due to this. However, you can bypass this by increasing the interest rate.

4. Would Additional Documents be Required for Taking Moratorium?

For individuals with an outstanding amount of less than ₹5 crores, no additional documents are needed. However, the borrower would have to declare that they have been impacted financially by the coronavirus pandemic.

If the amount is greater than ₹5 crores, then a detailed form might be needed to be submitted to the bank. Here, the customer would need to justify why they are taking a moratorium.

5. Would Taking Moratorium Affect the Credit Score?

This is another common FAQ for RBI mortarium. And the answer is no. If you skip on your EMI payments, your credit score declines. This could affect your ability to get loans in the future. But by deferring your payments with the help of moratorium, you can preserve your credit score.

The moratorium can provide much-needed respite. But it is better to avoid taking it, unless you really need to, since it can increase the repayment burden in the long run.

About This Author

Shaheen Shaikh http://www.adrclinic.co.uk Joined: April 29th, 2018