BQ Explains: Will The RBI’s Moratorium On Loan Repayments Help You?

Understanding RBI’s relief measures for borrowers 

A sign for the Reserve Bank of India is displayed inside central bank’s headquarters in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
A sign for the Reserve Bank of India is displayed inside central bank’s headquarters in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

The Reserve Bank of India has announced a package of measures to support the economy, at a time of severe stress brought on by spread of the novel coronavirus.

As a part of this package, the regulator has allowed banks to offer businesses and consumers a moratorium on their loan repayments for a period of three months. Who stands to benefit from the package and how easy will it be?

BloombergQuint explains.

What Relief Is Being Offered?

The regulator, in its circular, said that lenders are “permitted” to grant a moratorium of three months on payment of all installments falling due between March 1, 2020 and May 31, 2020.

Moratorium will not be automatically granted.

If you are granted a moratorium, the repayment schedule simply gets pushed back by another three months. You still have to make the payments, just at a later date. Banks will continue to book interest on your loan during the moratorium period.

If you are a small business with a working capital loan, interest on some loans can be deferred till May 31, 2020. “The accumulated accrued interest shall be recovered immediately after the completion of this period,” the RBI said.

What Kind Of Loans Are Covered?

The moratorium can be applied to any term loan installment, the RBI said. This includes retail and corporate loans.

EMIs, bullet repayments and credit card dues will be covered.

Some examples of loans on which you can seek relief include home loans, auto loans, loans against property, project loans, construction finance, etc.

According to data released by the RBI, as of January 31, total non-food credit from the banking system stood at over Rs 89 lakh crore, which included nearly Rs 25 lakh crore retail loans, Rs 4.8 lakh crore MSME loans, Rs 23 lakh crore large industry loans and over Rs 24 lakh crore loans to the services sector.

Who Can Offer The Moratorium?

The RBI said that all commercial banks (including regional rural banks and local area banks), co-operative banks, All India Finance Institutions and non-banking finance companies (including housing finance companies) can offer this relief to their borrowers.

But again, borrowers will have to approach individual lenders to seek moratoriums. Your loan is not automatically under a moratorium.

What Is The Process Banks Will Follow?

The lenders will need to come out with a board approved policy on how they will implement this package for ‘eligible borrowers’. This means that each individual bank will define its own criteria and based on that criteria decide whether to offer relief or not.

Those who have the ability to pay and have not lost income or wages due to the impact of Coronavirus may not be allowed to seek relief. The focus will be on borrowers who are directly or indirectly impacted by Covid-19 and the lockdown announced to deal with the virus spread.

For borrowers who have more than Rs 5 crore in loans, relief offered has to be duly registered in a management information system.

Will This Impact Credit Rating & Credit Score Of Borrowers?

According to the RBI circular, lenders and credit information companies have been asked not to downgrade the customer’s credit rating or history if they avail these facilities.

So, for instance, if you are a retail borrower, CIBIL or another credit bureau will not downgrade your score. Similarly, if you are a corporation, you rating would not be impacted.

However, once the relief period of three months is completed, and if the borrower is still not able to repay their dues, then credit rating and credit scores will be impacted.