RBI’s Moratorium Policy on Loan Repayment in wake of COVID-19
The ongoing COVID-19 crisis has not only created a worldwide health emergency but has also stressed the financial situation of individuals and businesses.
The Government has announced various relief packages, the Reserve Bank of India has also announced relief measures for customers who are repaying loans to tide over their financial difficulty in servicing the debts.
Accordingly, vide their circular RBI/2019-20/186 & Statement on Developmental and Regulatory Policies dated March 27th, 2020, RBI has permitted banks and financial institutions to provide a moratorium up to 3 months for all payments (both principal & interest) due between March 1st and May 30th 2020.
The accumulated interest along with the principal will be amortized over the period of the loan. This will result in an increase in the existing EMI or an extension of the residual term of the loan to amortize the accumulated interest along with the principal.
Frequently Asked Questions
- What is moratorium?
A moratorium implies that the customers can delay the payment of their monthly loan installments (EMI / EDI) for a limited period as defined by PROFECTUS CAPITAL. The interest, at the applicable interest rate, shall continue to accrue on the outstanding portion of the loan during the moratorium period.
For e.g. If a moratorium of 2 or 3 months (depends upon payment of March’2020 EMI) is granted by PROFECTUS CAPITAL, his/her/their EMI for March, April and May 2020 gets suspended and from June 2020, the EMI restarts.
- What is the moratorium scheme announced by RBI to address financial stress caused by COVID-19?
As per RBI’s circular dated 27th March 2020, PROFECTUS CAPITAL and other lending institutions have been permitted to grant a repayment moratorium of up to three months to its customers, on EMIs due between March 1st, 2020 and May 31st, 2020. Interest shall continue to accrue on the outstanding principal during the moratorium period. RBI has not granted a compulsory moratorium. It has only permitted lenders to grant moratorium. The PROFECTUS CAPITAL has pass on the benefit to all the customers by granting moratorium, except NPA classified customers.
- Will the moratorium be applicable on principal repayment, interest repayment or both?
The moratorium will be applicable to both principal & interest components i.e. the moratorium is applicable on loans in which customers are paying EMIs.
The interest, at the applicable interest rate, shall continue to accrue on the outstanding portion of the loan during the moratorium period.
- What happens if I have already paid the March instalment?
In that case the applicable moratorium period will be for the remaining 2 months.
- What is applicable term of the moratorium?
A moratorium of up to a maximum period of 3 months can be offered by PROFECTUS CAPITAL. The lenders are permitted to grant moratorium for all installments due between March 1st and May 31st, 2020.
- Will the interest continue to accrue during the moratorium period?
Yes, interest will accrue on your loan during the moratorium period. As a result the EMI will be increased to repay the loan along with the accrued interest. The interest during moratorium period will be capitalized leading to an increase in the EMI to amortize the principal together with the accrued interest.
- Will I be charged penal interest during the moratorium period?
No, however the moratorium should not be understood as a waiver and hence interest will continue to accrue on the outstanding principal during the moratorium period.
- Do I have an option to continue paying EMIs as per the schedule during the moratorium period?
Moratorium is an option provided by PROFECTUS CAPITAL to its customers who are facing a financial difficulty or a liquidity crunch during this unprecedented situation. However, customers who wish to carry on with the payment of their EMIs as per their original schedule can do so, which would be considered as part payment and adjusted against Principal outstanding.
- Can opting for the moratorium scheme adversely impact the credit score of the customer?
The postponement of the EMI payments during the moratorium period will not affect the customer’s credit score. During the pendency of the moratorium period non-receipt of EMIs will not be classified and reported as default to the credit bureaus.
- What will be my term after the moratorium?
The term can be extended by 2 or 3 months and thus the EMIs will increase to amortize the capitalized principle, within the extended term by 2 or 3 months.
- At what rate will I be charged interest during the moratorium period?
The interest will be charged as per the applicable interest rate on your loan.