Moratorium facility the new life-line

Covid has hit hard and made us think about the way we have been living our lives. It has put a compulsory reset to our lifestyles. All our cash flow calculations have gone out of the window and our financial worlds have overturned overnight in an unprecedented manner.

 

Various efforts have been undertaken by the Finance ministry and the Reserve Bank to help people deal with financial crisis arising due to COVID-19. Like wise, Moratorium facility on all types of loans, was announced by the Reserve bank of India on 27th March 2020 effective from 1st March 2020.

 

So what is all the discussion about? To shed light, we make it simple and uncomplicated…

 

 

Moratorium is an OPTION given by the banks to borrowers to delay the payment of the installments due on their loans. It is a TEMPORARY SUSPENSION of the loan repayment activity. Moratorium is available of the outstanding principal and interest of the loan; i.e it is available on the entire EMI amount.

 

 

Moratorium was first introduced from 1st March 2020 till 31st May 2020 and then from 1st June 2020 till 31st August 2020. There is a discussion that this period might be extended till 31st December 2020, but most banks are averse to such a decision.

 

 

As per RBI announcement, all commercial banks including small finance banks, regional rural banks, local area banks, cooperative banks, financial institutions, and non-banking financial companies can give moratorium facility to their borrowers.

 

 

In normal circumstances, as per RBI guidelines, if a loan installment is overdue for a period of 90 days, it is classified as Non-Performing Asset (NPA). But RBI has specifically stated that the moratorium period will be excluded from the duration of 90 days for classifying a loan as NPA. 

 

So even if you avail moratorium facility and temporarily stop paying installments for the said period, your loan will not be classified as NPA. You will not be declared as a defaulter for not repaying your loan for the moratorium period. It will not affect the asset classification of the bank (Asset because for a bank, the loans given by them form part of their assets).

 

 

Yes, interest will accrue on your total outstanding amount. 

Banks earn money on the interest levied on the loans they give. At the same time, they must pay money on the savings and fixed deposits held by them. This difference between the interest earned and the interest paid is their primary source of income.

 

Now, if interest on outstanding loans is waived, will the bank be able to pay interest on deposits? Any kind of Interest waiver will jeopardise the financial health and stability of the banks.

Please check with your Janakalyan Bank branch on the rate of interest that will be levied on your loan outstanding. 

 

 

No, as per RBI guidelines even if you avail the moratorium facility, it will not affect your credit rating.

Credit score is important as it helps the lenders to gauge the capacity of the borrowers to repay the loan. It is an important factor in deciding the amount of the loan sanctioned to a borrower.

 

 

Moratorium can be availed on the following types of loans: Home loans, Personal loans, Educational loans (it is normally available on all educational loans, where moratorium period is extended upto 1 year after the student finishes his/her course, in which period the student can fetch a job and repay the loan), Automobile loans, working capital loan, Consumer durable loans, Credit card dues, Term loans, agricultural loans, crop loans etc. 

 

You may approach your Janakalyan Bank branch to check on the availability of this facility in case you have availed a loan and are finding it difficult to keep up with the monthly installments.

 

Most banks like Janakalyan Bank have provided ‘opt out’ facility for moratorium where the borrower will have to opt out of moratorium facility. A few banks have asked its borrowers to opt in for this facility by filling a form to the effect.

 

To decide the need to take up this facility, an individual or a corporate should clearly assess their incomes and expenditure for the forthcoming quarters. If the circumstances so arise that loan repayment for some time would be difficult, then this facility should most definitely be availed, BUT AS A LAST RESORT. 

 

Janakalyan Bank will not just help you assess your financial picture from your previous records, but also advice on and offer Moratorium facility if you need to opt for the same. 

 

To avail the moratorium facility, one should have a clear understanding of one’s finances and then take an informed decision.