A lockdown period of 21 days has been announced by the Government of India to restrict and contain the spread of the COVID 19virus. Joining the war against the deadly virus the RBI has announced its own set of relief measures with an announcement for a moratorium of three months of EMI’s for all outstanding loans.

As per the announcement “All commercial, regional, rural, NBFCs and small finance banks are being permitted to allow 3-month moratorium on payment of instalments in respect of all term loan EMIs outstanding on March 31.”

The word Moratorium literally means “a temporary suspension of an activity or law until future events warrant lifting of the same”, in this case refers to an EMI holiday period for the next 3 months when the borrower will not be required to pay the EMI.

Although this announcement gives a tremendous sense of relief to individuals constrained for finance during this period, please pay heed to the following scenarios on the ground.

Is this a Blanket moratorium across all Banks, NBFC’S and financers?

On a closer look the RBI states “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 and micro-finance institutions) (“lending institutions”) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020.

As the above indicates with the term permitted being used, is that it is finally the decision of the lender under what conditions the moratorium to be applied. How the moratorium is to be implemented is also at the discretion of the lender.

The advisory also states that the rules would apply unless the norms of the agreement mention the conditions for the moratorium.

Will the CIBIL be affected due to the non payment of the EMI during the 3 month moratorium period?

Normally a Bank, NBFC, or a private lender would be obliged to report the non payment of dues to the CIBIL or credit recording authority as default or a delay. This in term would impact the credit score, as per the RBI announcement a leeway will be given for the non payment of an EMI during the period of 3 months starting March 31st .This would not be recorded as a default and nor would the credit score be adversely affected.

What will be the interest charged during this period of non payment.

The RBI has allowed the EMI payment to be deferred during the lockdown period of 3 months but has allowed interest on the principal borrowing be charged during this period, the rate will differ as per the policy of the lender and the applicable repo rate.

How will the EMI be adjusted post the moratorium period?

The tenure of the Loan will be extended for a period of 3 months, due to the 3 month moratorium period: an additional interest will be charged for 3 months on the principal balance of the loan amount, this will either be payable onetime or get adjusted in the Emi as per the individual policy of the lender.