RBI 3-Month EMI Decoding, Loan Moratorium: Should You Take Advantage of It?


The Reserve Bank of India (RBI) recently allowed the country’s banks to grant a three-month moratorium on term loans and EMI payments to help millions of people with bank dues during the novel coronavirus pandemic.

However, the banking regulator did not order banks to provide such relief. It gave banks the option to take a call on whether they are in a position to extend the measure for customers.

just put, banks are not required to comply with the RBI’s suggestion and you can choose to ignore it on the basis of financial health. The country’s largest public lender, the State Bank of India (SBI), has announced that it will comply with the RBI request.

A moratorium, not a waiver

Many economic experts said that the terminology used by the RBI in the matter raised many questions. Some reports show that banks are not yet ready to take any action on this announcement.

“With respect to all term loans (including agricultural, retail and crop term loans), all commercial banks (including regional rural banks, small finance banks and local area banks), cooperative banks , financial institutions across India and NBFCs (including housing finance companies) (lending institutions) can grant a three-month moratorium on payment of all installments due between March 1, 2020 and May 31, 2020,” RBI said.

“The payment schedule of such loans, as well as the residual term, will be changed across the board three months after the moratorium period. Interest will continue to accrue on the outstanding portion of the term loans during the moratorium period,” he said. .

The last part of the RBI statement on the moratorium is exactly why people should not opt ​​for the relief measure unless they absolutely need it.

People should continue to pay their credit card installments, EMI and retail loans if they are not in financial trouble due to the ongoing Covid-19 lockdown.

For example, if you avoid paying monthly installment payments, your interest will be calculated on a higher amount each month.

For expensive loans, like home or car loans, missing monthly payments for the next three months could significantly increase the amount of interest you pay.

Therefore, it is an option of last resort for those who are facing a deep funding crisis due to the prevailing situation in India due to Covid-19.

So the only relief you technically get here is that there is no credit score impact from missing payments for the next three months. This means that the bank will not report defaults on such loans to credit rating authorities for the next three months.

Try to pay off credit card fees

People who can afford to pay their credit card fees must pay them off before the due date, despite the RBI’s moratorium option. Credit cards typically charge a much higher interest rate than other loan instruments.

Experts also say late credit card payments can significantly increase fees since they’re added directly to the bill. Therefore, if you are a credit card holder, paying monthly installments is the best practice, even if there is a three-month moratorium.

People who have taken a marginal hit due to the Covid-19 lockdown could try to pay off at least the minimum balance due to avoid a heavy hit later.

The credit card-based payment application, CRED, also sent a note to all users of your app informing them of the consequences of not paying the fees.

“CRED recommends that you continue to pay your full amount due (or as much as possible) by the due date to avoid interest charges at a compound annual rate of 36 to 42 percent if you can,” it said in its note.

In a nutshell, the RBI’s loan moratorium is not a waiver that offers immunity from rising interest.

This is necessary only for those who are facing a financial crisis due to the ongoing economic crisis due to the lockdown.

While SBI has already announced that it will comply with the RBI recommendation, major private banks such as HDFC Bank, Axis Bank and ICICI Bank are likely to file a communication for clients tomorrow.

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