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RBI Extends Moratorium on Term Loans by Another 3 Months Upto August 31

Reserve Bank of India governor, Shaktikanta Das, on Friday extended moratorium on all term loans by another three months.

After the nationwide lockdown began to curb the spread of Covid-19, Das had announced a three-month moratorium to be given by banks to provide relief to borrowers whose income has been hit due to the lockdown. The loan moratorium has now been extended till August 31 for six months.

The decision will be applicable to all regional, rural banks, co-operative banks, NBFCs, including Housing Finance Companies. The moratorium will not result in asset classification downgrade and will have no adverse impact on credit history of beneficiaries.

A moratorium period is a time during the loan term when the borrower is not required to make any repayment. Normally, the repayment begins after the loan is disbursed and the payments have to be made each month, however, the RBI has made an exception in view of the financial distress arising out of the global coronavirus pandemic.

This is part of the Central Bank's measures to counter the coronavirus lockdown.

Meanwhile, the banking sector had been pushing for moratorium on loan repayments by another three months to August 31, easing of bad loan recognition norm from 90 days to 180 days and one-time restructuring of loans as relief measures to tackle the impact of lockdown and the slowdown in the economy due to the pandemic.

Currently, loans in which the borrower fails to pay principal and/ or interest charges within 90 days are classified as non-performing assets (NPAs) and provisioning is made accordingly. Some banks, which are hopeful of an economic recovery, wanted this also to be raised to 180 days to limit the surge in NPAs.

The extension also means a delay in payment and borrowers will have to shell out the installments and interest charges later.