A moratorium refers to a specific period of a loan tenure during which the borrower will exempt from repaying of loan. It is an as a legally authorized period of delay in the performance of a legal obligation or the payment of a debt. Usually, when one applies for a loan, he or she is require to pay the EMIs from day one until the last day of the loan tenure. However, when one has a moratorium period, he or she will not have to repay any amount to the lender. Even though you are not paying anything during this period, you will still accrue an interest. .
A moratorium period is mostly given for education loans. With the help of this period, the loan applicant who is the student in this case, do not require repay anything during the moratorium period. Once the student completes his or her course and secures a job after graduation, he or she can repay the amount conveniently. The moratorium period is set by the lender and the applicant will need to adhere to it.
Central Bank on Friday announced a rate cut of 0.75% amid Covid-19 lockdown considering unprecedented economic crisis all over the world including India. After the stimulus package announced by Finance Minister Nirmala Sitaram for 1.7 lakh crores, RBI took its initiative to release the fund in the system.
The central bank also announced 3-month deferment on term loan for individual borrowers. After this news on moratorium by RBI governor, the bank nifty traded at day high. But the stock market has already discounted this news on Wednesday and Thursday trading session.
As per the RBI circular, banks and NBFC’s can provide a moratorium of three months for all term loan instalments which are due for payment between 1 March and 31 May. Term loans will include all kinds of retail loans such as vehicle loan, home loan, and personal loan, agricultural term loans as well as crop loans. The RBI has clarified that credit card dues will also be eligible for the moratorium. The moratorium is for both interests as well as principal repayment, which means the moratorium is on your entire EMI.
A moratorium is not the waiver for your EMI, it is shifting your due payment by three months. It is not a concession but simply deferment of payment as interest will accrue for the said period.
Many experts say that if you afford to pay your EMI then please go ahead. According to RBI, the moratorium is to help borrowers tide over the liquidity issues due to the pandemic. This is not a concession and will not lead to any change in the terms and conditions of the loan.
And this moratorium was just an instruction given to the bank to allow borrowers to give breathing period if the bank thinks it deems fit.
Now here what we have to interpret, there was no actual need of deferment in loan for individuals as this was just an opinion to bank on the moratorium. Only the positive thing is there will not be an impact on your credit history if you avail the moratorium facility.
But no one wants to default the payment whether credit history is impacts or not. We always take into bother about the interest accrued.
Why is it delusional relief?
We all know the impact of the pandemic on our economy. All midsize company may not be able to survive when all this will be over. Even some may people lose their jobs amid lockdown.
Travel, Tourism, Hospitality and Airlines will see the downside for a longer time. Some Auto and Real sector may also see the deeper revenue cut in the coming month.
This lockdown is for the month, quarter, half-year or a year. No one knows when will we survive this. Here I don’t want to be negative. This is not the first time we are facing the crisis, we had survived it and we will survive.
But the government should understand that this class of people who are going to lose the job or may not get their salary will not benefit this moratorium. Even after three months the have to pay it but with higher interest and principle. How on the earth they will be able to pay and it will create panic among those class of people.
I know government and its autonomous bodies are trying hard to get over this. But it should target the people who are actually in need to rescue. Further, I want to see which companies will get a bailout.
This is the reason I believe that the relief by RBI is delusional. RBI should have observed the data of total debt holders in the country. It clearly shows the picture that individual in this country borrow more then what they earn.
RBI clarifies that the moratorium will include the credit card loans and other retail loans.