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RBI three-month moratorium: Will bank charge interest, credit score change? FAQs answered here

Rajeev Kumar
RBI three month moratorium faqs impact on interest, credit score, working capital loan answered

RBI’ Three Months moratorium on Term Loan FAQs: The Reserve Bank of India today surprised many by permitting banks to allow a moratorium of three months on payment of instalments falling due between March 1, 2020 and May 31, 2020. Experts have hailed this as a positive move in the time of novel coronavirus which has put the entire country in a lockdown for 21 days and severely impacted the country’s economy. However, there are several questions in the minds of borrowers about the three-month moratorium plan and its implications. Here we answer some of these questions after looking into the finer details of the announcements made by RBI:

What the RBI has exactly allowed?

The Central bank has provided the banks with the permission to allow moratorium of three months on repayment of instalments for term loans outstanding beteen March 1, 2020 and May 31, 2020. This is expected to help those borrowers who may find it difficult to repay their loan instalments in the wake of challenges posed by the coronavirus crisis.

Will I have to pay interest on the outstanding loan for three months?

Yes. Nothing coming comes free! With the moratorium in place, the banks may not ask for penalty on missed EMIs, but continue to add interest on the outstanding loan. The RBI has clearly told banks, "Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period."

Will the bank reschedule my EMIs?

Yes. The RBI said, "The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period."

Which bank or lender can offer the three-month moratorium?

As per the RBI, the moratorium of three months can be offered by all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies).

What will happen to my credit scrore if the bank puts a three-month moratorium on loan repayment?

Your credit score will not be affected for three months as the rescheduling of the payments will not qualify as a default. The RBI said, "The rescheduling of payments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to Credit Information Companies(CICs) by the lending institutions. CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries."

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Will the terms and condition of loan agreement change?

No. The RBI said that moratorium will be provided only to enable the borrowers to face the economic fallout from Covid-19. Hence, it cannot be treated as a concession or a change on terms of the loan agreement. "Since the moratorium/deferment/recalculation of the 'drawing power' is being provided specifically to enable the borrowers to tide over economic fallout from COVID-19, the same will not be treated as concession or change in terms and conditions of loan agreements due to financial difficulty of the borrower…".

Will the bank waive interest on working capital loan for three months?

No. The RBI said, "In respect of working capital facilities sanctioned in the form of cash credit/overdraft ("CC/OD"), lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1, 2020 upto May 31, 2020 ("deferment"). The accumulated accrued interest shall be recovered immediately after the completion of this period."