RBI loan EMI 3-month moratorium: Advantage or disadvantage to an Individual?

To help millions of people during the pandemic of a novel coronavirus, RBI allowed the banks in the country to provide a three-month moratorium on fix-term loan and EMI payments.

However, the banking regulator has not ordered the banks to provide this relief, and it has only offered the option to banks to take a call if they can give this option to their customer. In a simple statement, the banks are not obliged to fulfill the RBI’s suggestion and can choose to ignore based on their financial health. The country’s most prominent public sector bank State Bank of India has decided to honor the RBI request.

The terminology used by RBI tough raised doubts whether the EMI’s were waived off. The clear statement of RBI was “In respect of all term loans which include agricultural term loan, retail and crop loan; all commercial banks, co-operative banks, all-India Financial Institutions, and NBFC (including housing finance companies) lending institutions are permitted to grant moratorium for three months on payments of all installments which are due between 1st March 2020 to 31st May 2020.

The repayment plan of such loans as also the balance period will be shifted across the board by three months after the moratorium tenure. Interest shall continue to accrue on the unpaid portion of the term loans during the moratorium period.

The above statement is precisely why an individual should not opt for the relief measure unless they need it. An individual should continue paying their credit card, EMI, retail loan installment if they are not financially strained due to the COVID19 lockdown. If you avoid paying the monthly payments on dues, then your interest will be calculated on a higher volume every month.

For high-ticket loans like vehicles and home loans, not paying monthly dues for the next three months would increase the amount of interest you pay significantly. Therefore it should be a last-ditch option that are facing fund crunch due to the prevailing CONVID 19 situation in India. 

So the only relief one technically here gets there is no impact on the credit score due to non-payment for installation in the next three months. It means the banks will not report defaults on such loans to credit scores for the next three months.