FAQ: EMI Moratorium May Extend – What Options Do Borrowers Have?

As RBI’s EMI moratorium due to COVID-19 ended on 31 August, what options do borrowers in India have?

The moratorium period announced by the Reserve Bank of India (RBI) from 1 March, in the wake of financial constraints owing to COVID-19 pandemic, came to an end on 31 August.

Remember, the EMI moratorium is a deferment of loan payment and not a waiver. The option to defer EMIs was given to both personal and commercial borrowers.

However, this has come to an end after six months – unless the RBI or Supreme Court, which is hearing a related plea alters the end date.

So, in this scenario, what options do borrowers have? Here’s all you need to know.

Will the RBI extend moratorium period beyond 31 August?

There has been no announcement by the RBI regarding this – therefore, the moratorium period has officially ended.

However, the Centre on Tuesday, 1 September, informed the Supreme Court that the loan moratorium period can be extended by two years as per a RBI circular. Individuals and businesses can approach their banks, who will decide on a case-to-case basis.

The SC has posted the matter again on Wednesday, 2 September.

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What happens if the moratorium period is not extended?

This means that the borrowers will have to start paying their monthly instalment from 1 September onward.

However, it is to be noted that had the borrower opted for the moratorium, their monthly payment would have increased. This is because the banks will charge interest on the outstanding principal for the period of the moratorium.

So, suppose his interest per month was Rs 2,000 and his interest rate is 8 percent. So when he starts paying, the interest will be levied on the 2,000 for the subsequent months and the 12,000 that he hasn't paid.

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What happens if I do not make a EMI payment?

If you fail your EMI payments from September and the moratarium period is not extended, then you will be reported to the credit bureau.

Not only will your credit score be affected but you will also not be able to avail new loans.

Is there no other option left?

In July 2020, the RBI allowed banks to formulate a one-time loan restructuring plan for those borrowers who were affected by COVID-19. While a committee has been constituted, the "finer contours" have been left to individual banks, reported MoneyControl.com

The two broad options remain to either restructure the loan or extend the moratorium period after assessment of the borrowers income.

Restructuring of loan is when the borrower and the lender alter the terms of the loan. For example, the borrower could restructure the loan to pay a lower monthly payment in case of an adverse financial situation.

(With inputs from MoneyControl.com, PTI)