Indian lenders have started offering moratoriums on loan repayments, to provide relief to borrowers affected by the Covid-19 pandemic.
On March 27, Reserve Bank of India (RBI) had authorized all banking and non-banking entities to defer, for three months, the collection of equivalent monthly payments (EMI) on all term loans outstanding as of March 1.
Details of the package have now started appearing on bank websites, and not everything is black and white. There are pitfalls if you go for the moratorium.
Quartz tries to answer some of the frequently asked questions regarding the program.
What exactly is a “moratorium”?
Of course, this is not a waiver. A moratorium only allows a borrower to defer a loan payment; in this case, three months. That is, customers who have EMIs due between March 1 and May 31 can defer payments.
Who can benefit from it?
RBI included all term loan contributions as part of the moratorium. Term loans include auto loans, home loans, personal loans, and farm loans or any other fixed-term credit.
Will borrowers benefit from an interest waiver?
No. Interest will continue to accrue on the unpaid portion of term loans during the moratorium. Interest due during the moratorium period will be added to customers’ outstanding debt and will only increase their borrowing charge.
Therefore, it is advisable to only opt for it if they are facing a cash crunch, otherwise it is better to keep paying IMEs.
For example, for a State Bank of India (SBI) car loan worth Rs6 lakh ($ 7,900), which has a remaining maturity of 54 months, the additional interest payable will be around Rs19,000. The amount equals an additional 1.5 IMEs, the bank said.
Likewise, for a home loan of Rs30 lakh with a residual maturity of 15 years, the additional net interest would be around Rs2.34 lakh, which is equivalent to eight IMEs.
For clients of private lender HDFC Bank, loan amount of Rs4 lakh for a salaried personal loan, with a remaining term of 48 months, the additional interest will be around Rs15,000, and the resulting term will increase by 1.4 NDE.
Will the customer be charged for late payment during the moratorium period?
No late fees will be charged.
Will the moratorium affect a customer’s credit rating?
No. Opting for the EMI moratorium will not affect customers’ credit rating.
What is the procedure for the customer to request the EMI moratorium?
If customers don’t want a moratorium, they don’t have to do anything. But if they go ahead, customers will have to let their banks know.
For example, HDFC Bank customers who wish to defer their IMEs can fill in the form available on the bank’s website or they can call 022-50042333, 022-50042211. However, SBI clients should compose an email and send it to the bank to inform them of their decision.
Will the term of the loan also be extended?
Yes. If the client has paid the EMI for the month of March and has opted for a moratorium for April and May, the loan term will be extended by two months.
If customers have already made the EMI payment for the month of March, can they request a refund?
Yes and no. Some banks did not provide this option and instead allowed customers to opt for deferral of IMEs for the next two months (April and May). State-owned SBI clients, however, can opt for a refund of their March EMI, the lender’s website states.
Does this also apply to credit card charges?
Credit card contributions will also be eligible for the moratorium. However, interest will be charged by the credit card issuer on the unpaid amount. Typically, credit card companies charge high interest rates of 36% to 42% per year in India. In addition, the interest rates on a credit card also result in a Goods and Services Tax (GST) of 18%.