What is the RBI EMI Moratorium? Should You Claim It?

The RBI’s recent announcement regarding RBI EMI Moratorium among the deadly Pandemic spread out and the lockdown is a much-needed relief. The current issues in India might cause liquidity issues adding up to the looming recession.

Since the implementation of the lockdown in the country most businesses except for the emergency services have taken a back seat. Most businesses involved with technology have started work from home whilst the large group of the unorganized sector remains work less. This indicates low stable income, less money in transactions, and high illiquidity in the market.

To save the citizens from the negative effects of the Pandemic, lockdown and illiquidity RBI recently ordered the financial institutions to issue a three-month EMI moratorium. Just to make sure that the people who are already having a tough time with an unstable income, do not get overburdened with the EMI’s, RBI made this decision.

Banks and other financial entities including Microfinance institutes should now allow their customers to defer their payments that are due for the month’s March, April and May, for their loan installments. All types of loans such as home loans, personal loans, car loans, working capital loans, and agriculture loans are covered under the declared moratorium plan. Even the credit card dues are eligible for the moratorium clarified by the Central bank. The financial institutes are also further instructed to not negatively affect the consumer’s credit score.

So, what exactly is the RBI EMI Moratorium?

A moratorium, according to the Oxford Learner’s Dictionary, is “a temporary cessation of an activity, especially by official agreement.” A waiver, on the other hand, is defined as “a situation in which someone gives up a legal right or claim” by the dictionary. An EMI moratorium is thus distinct from an EMI waiver. An EMI moratorium means that you can stop paying the EMI for the time being, but you must pay it later. An EMI waiver means you don’t have to pay the EMI at all during the waiver period.

The EMI moratorium is merely a temporary measure that allows borrowers to postpone loan repayments that they would otherwise have to make. You can use the scheme to postpone paying your bills without affecting your credit score. During this time, however, banks will continue to charge interest on the outstanding loan balance. When the relief measure expires, the accrued interest will be added to the principal amount, increasing both the overall loan amount and the total payable interest.

In layman’s terms, missing instalments may result in an increase in the EMI amount or an extension of the loan tenure by 6-10 months. Customers who intend to take advantage of the EMI moratorium can benefit from the risk-aversion measures listed below.

What Are The Key Highlights of the Announcement of RBI EMI Moratorium?

• All commercial banks including regional rural banks, small finance banks, local area banks, co-operative banks, all-India Financial Institutions, and NBFCs re eligible to extend the moratorium.
• Individual banks can frame policies and offer an exemption to all customers or a few who request for it.
• The default of the payments during the months of March, April and May will not negatively impact the customer’s credit score.
• The payment of the principal amount and interest for the moratorium period will be suspended.
• All types of Loans with a fixed tenure are covered under this type of loan.
• EMIs on goods like mobiles, fridge, TV, etc. are also covered under the moratorium.
• Credit card dues are also included for the EMI moratorium.
• Relief measures are applicable to the working capital loans taken by the businesses.

Aspects on which Clarity is Awaited?

While the central bank’s announcement indicates that the tenor will be shifted, it is not clear how the deferred payments will be scheduled. So, this change may lead to an extension of three months after the original tenure.

It is not yet clarified if the borrowers will need to pay the additional interest on the accrued amount during the moratorium period. The clarity regarding the loans taken on credit cards is missing, while some assume that as the credit card dues are eligible the loans might as well be exempted from paying the EMI dues.

Should You Claim It?

The EMI moratorium doesn’t mean a concession or waiver of the due amount but just the payment is scheduled or extended for an additional 3 months. All the terms and conditions for the moratorium period stay intact meaning the interest for these months just gets accumulated. The customers who claim the offer will need to pay an added interest accrued for this moratorium period. This measure is taken by RBI especially for those with irregular or unstable cash flow whose income can be affected during the lockdown period.

Given the high-interest rate that will be added to your outstanding loan balance, it is critical to weigh your options before deciding on a moratorium. Loan repayment is a legal requirement, and the moratorium has no effect on that. You should try to pay your monthly EMIs without using the moratorium. This will help you avoid having to pay a larger sum in the future. If you choose to postpone payments, you should consider paying the accrued interest as soon as the moratorium period expires.

What Should Borrowers with Regular Salaries do?

While the EMI moratorium is a blessing for people with unstable income people with a stable income can avoid this if they can. EMI moratorium comes with a cost of added interest that would be unnecessary for those who can afford to pay the EMI dues. Especially for loans with high-interest rates like credit card loans.

So the ideal approach to the confusion of claiming or not claiming the RBI EMI moratorium is checking if it’s necessary that you skip the due. If it’s an absolute necessity then avail of the moratorium or else it’s better to avoid the EMI moratorium to skip the extra cost of added interest.

Whether or not a moratorium is appropriate will be determined solely by the remaining term of your loan and the interest rate. The higher the interest rate of a loan and the remaining tenure, the higher the cost of choosing a moratorium. Take the relief measure only as a last resort to avoid future financial difficulties.

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