Is it worth going for the three-month EMI moratorium offered by Indian banks?

Money matters.
Money matters.
Image: REUTERS/Adnan Abidi
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India’s lenders have begun offering moratoriums on loan repayments, as a relief to borrowers who have been hit by the Covid-19 pandemic.

On March 27, the Reserve Bank of India (RBI) had permitted all bank and non-bank entities to defer, by three months, the collection of equated monthly instalments (EMIs) on all term loans outstanding on March 1.

The details of the package have now started to emerge on banks’ websites, and it’s not all black & white. There are catches if you opt for the moratorium.

Quartz tries to answer some of the frequently asked questions related to the scheme.

What exactly is a “moratorium”?

To be sure, it is not a waiver. A moratorium only allows a borrower to defer a loan instalment; in this case, by three months. That is, customers who have EMIs due between March 1 and May 31 can defer the payments.

Who can avail?

RBI has included all term loans dues under the moratorium. Term loans include vehicle loans, home loans, personal loans, and agricultural loans or any other credit which has a fixed tenure.

Will borrowers get an interest waiver?

No. Interest shall continue to accrue on the outstanding portion of term loans during the moratorium. The interest due during the period of the moratorium will get added to the customers’ outstanding amount and will only increase their loan burden.

Therefore, it is advisable that one should opt for it only if they are facing a liquidity crunch, else it’s better to continue paying the EMIs.

For example, for an auto loan from the State Bank of India (SBI) worth Rs6 lakh ($7,900), which has a remaining maturity of 54 months, the additional interest payable will be around Rs19,000. The amount is equal to an additional 1.5 EMIs, said the bank.

Similarly for house loan of Rs30 lakh with a remaining maturity of 15 years, the net additional interest would be approximately Rs2.34 lakh, which is equivalent to eight EMIs.

For the customers of the private lender HDFC Bank, loan amount of Rs4 lakh for a salaried personal loan, with a remaining tenor of 48 months, the additional interest will be about Rs15,000, and the resultant tenor will increase by 1.4 EMI.

Will the customer be charged for late payment during the moratorium period?

No late payment fee will be charged.

Will the moratorium affect a customer’s credit rating?

No. Opting for the EMI moratorium will not affect customers’ credit rating.

What is the process for the customer to apply for the EMI moratorium?

If the customers do not want to opt for a moratorium, they don’t have to do anything. But if they are going ahead with it, then the customers will have to inform their banks.

For instance, HDFC Bank customers who want to defer their EMIs can fill the form available on the bank’s website or they can call at 022-50042333, 022-50042211. However, the SBI customers have to draft an email and send it to the bank informing it about their decision.

Will the loan period be also extended?

Yes. If the customer has paid the EMI for the month of March and has opted for a moratorium for April and May, then the loan tenure will get extended by two months.

If the customers have made the EMI payment already for the month of March, can they ask for a refund?

Yes and no. Some banks have not provided this option and instead have allowed customers to opt for the deferment of EMIs for the next two months (April and May). Customers of state-owned SBI, though, can opt for a refund of their March EMI, the lender’s website shows.

Does this apply to credit card dues as well?

Credit card dues will also be eligible for the moratorium. However, interest will be charged by the credit card issuer on the unpaid amount. Generally, credit card companies charge a hefty interest of 36% to 42% annually in India. Besides, the interest rates on a credit card also attracts an 18% Goods and Services Tax (GST).