Aveek Pal Chaudhuri

Coming as an aid for borrowers in the time of COVID-19 pandemic, the Reserve Bank of India (RBI) this Friday announced three months moratorium on all EMIs. According to official RBI statement, it goes as – In respect of all term loans (including agricultural term loans, retail and crop loans), 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) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all installments falling due between March 1, 2020 and May 31, 2020. The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period.

Banking heads have regarded this as a humanistic move by the RBI aligning economic demands in line to fight through COVID-19. They say the moratorium on loan EMIs and the regular CRR (Cash Reserve Ratio) cut will lead to stabilization of the financial markets, immediate rate transmission, and provide credit needs to real economy. RBI has also mentioned that this decision will not imprint effects on the credit score of the borrowers.

Effect on Businesses

•    Freelance businesses that are going through a loss of income due to the lockdown will get some break. Steps taken to allow banks for lending cash will help the freelance business owners, small scale businesses, self-employed and others.

•    If you own a small or big business that already have utilized the existing cash (certain borrowed cash amount from a bank for which you are paying monthly EMIs,) for buying raw materials and are yet to manufacture final products (which is getting delayed because of lockdown), you can delay the EMI for three months. After the lockdown is called off, you can start paying EMIs upon receiving consumer payments by delivering their orders.

•    Though you will have to pay the extra amount for getting the EMI delay later as you are on a moratorium timeline which is not free interest duration. Moratorium is helping you to fulfill your business needs with cash flow (directly or indirectly).

•    As per to RBI, if you have borrowed an amount of INR 5 crore or more as on March 1, 2020, then bank will be developing an MIS (management information system) on the reliefs provided to you which shall inter alia include borrower-wise and credit-facility wise information regarding the nature and amount of relief granted.

•    There will be no change in the terms and conditions of the loan agreement between you and your lending bank. This is a moratorium declared due to COVID-19 pandemic and EMIs terms that include amounts borrowed against property will have three months moratorium.

•    Since this is a moratorium and not a loan relinquish, you still have to pay the amount after three months. It might become a burden if your business does not go as planned. Hence, if you are able to pay the EMIs now, go ahead and do it. Bank will continue to levy interest in these three months and when it's affordable for you to pay the loan amount, continue paying.