RBI extends EMI moratorium for another three months on term loans. Here's what it means for borrowers

The Reserve Bank of India (RBI) announced an extension of the moratorium on loan EMIs by three months, i.e. August 31, 2020. The earlier three-month moratorium on the loan EMIs was ending on May 31, 2020. This makes it a total of six months moratoriu on loan EMIs starting from March 1, 2020.

The extension of three-month moratorium on repayment of term loans by borrowers means that they would not have to pay the loan EMI instalments during the moratorium period.

The extension will provide relief to many individuals, especially the self-employed, as they would have found it difficult to service their loans such as car loans, home loans etc. due to loss of income during the lockdown period from March 25, 2020. Missing an EMI payment would mean risking adverse action by banks which could have hit their credit score.

As per the debt servicing relief announced earlier by RBI, interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period. Deferred instalments under the moratorium will include the following payments falling due from March 1, 2020 to May 31, 2020: (i) principal and/or interest components; (ii) bullet repayments; (iii) Equated Monthly instalments; (iv) credit card dues. It is likely these will continue for the extended period of the EMI moratorium.

Going by the Reserve Bank of India's previous statement on the first three-month EMI moratorium, availing such a moratorium would also not lead to a down grading of the borrower's credit rating or affect the risk classification of the loan. Further, availing the moratorium will not entail any change in the existing terms and conditions of the loan. If the existing terms and conditions of the loan contain conditions/charges related to a moratorium then these may apply depending on the moratorium policy adopted by the lending institution. As per the RBI, repayment of credit card dues can also be deferred under the moratorium mechanism.

Under normal circumstances if loan repayment is deferred then the borrower's credit history and risk classification of the loan can be adversely impacted. However, in case of this moratorium the borrower's credit rating will not be impacted in any way, as per the central bank previous statement.