Reserve Bank of India governor Shaktikanta Das remarked as he unleashed a range of weapons to combat the economic hardships arising out of the ongoing Coronavirus pandemic. While, on one hand, he announced MPC’s decision to cut down the repo rate by 75 basis points to 4.40%, on the other hand, he permitted all banks, NBFCs and other financial institutions to allow a 3-month moratorium on payments of term loan installments outstanding as on March 1, 2020, deferment on which will not impact the credit history of the borrower.
The 3-month loan moratorium will come as a big relief for borrowers who might have been struggling with their repayments in these times of extraordinary economic challenges and uncertain financial future. If you can afford to repay your loan EMIs, you should try to set aside that amount even if you’re not required to pay them during the moratorium unless doing so will adversely impact other pressing financial requirements. This would ensure speedy lowering of loan burden once the moratorium ends. Most importantly, get complete clarity with your lender how it will impact your loan before reaching a conclusion and don’t assume anything based on hearsay.
Non-payment of loan EMIs during the moratorium will not impact your credit score, as mentioned by the RBI governor. As such, you should stay on top of it by checking your credit score regularly during the moratorium period.
The cut in the key policy rate will result in repo rate-linked floating loans getting cheaper, while the exact impact on MCLR-linked loans remains to be seen. This will, however, also lead to cut in bank deposit rates. But despite the lowering deposit rates along with tax on returns, FDs and RDs should continue to be the favoured investment instrument of risk-averse investors. Depositors should not worry about the safety of their deposits, as assured by the RBI governor, and prefer digital transactions.
The author is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.