The Reserve Bank of India decided to hold back the instalments on term loans for three months. This brings a huge relief for term loan borrowers like home loan, car loan and all retail loans, as the country is under lockdown with curfew imposed in certain districts the economic activities have halted.

RBI Governor Shaktikanta Das said, “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.”

He added, “Accordingly, the repayment schedule and all subsequent due dates, as also the tenor for such loans, may be shifted across the board by three months.”

The delay in the EMIs to be allowed will be a big relief for the banks and borrowers by avoiding large number of defaults as retail lending had been the only avenue for banks to lend in the current stressed enviroment including pre-Covid-19 term outbreak.

However experts say, this is not a blanket ban by the RBI on instalments of term loans. It is at the discretion of the lenders to implement this.

Further owing to the country wide lockdown the economic activities have come to a pause and many people could possibly be looking at income loss or job cuts where it would’ve become difficult for them to service their loans.

A single default on EMI adversely impacts the credit score of the borrower and are at risk of actions taken by banks.

The RBI further added “the moratorium/deferment is being provided specifically to enable the borrowers to tide over the economic fallout from COVID-19. Hence, the same will not be treated as change in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade. The lending institutions may accordingly put in place a Board approved policy in this regard.”

The RBI rules specify any default payments should be recognised within 30 days and banks have to classify these accounts as Special Mention Accounts (SMAs)

Finance Minister Nirmala Sitharaman said “Appreciate RBI Governor’s reassuring words on financial stability. The 3 month moratorium on payments of term loan instalments (EMI) & interest on working capital give much-desired relief.”

News Source: Times


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