Borrowers Unlikely To Get Loan Moratorium Benefit As Banks Will Charge Interest Later

The three-month suspension of EMI payments may not result in a significant gains for borrowers as they will charge interest for the moratorium period, according to the moratorium scheme announced by state-owned banks. Last Friday, the RBI had announced that all term loans, including retail and crop loans and working capital payments, will be covered by the three-month moratorium. Banks will now have discretion in deciding the limits on working capital, with RBI saying that no payment miss should be considered a default and reported to credit information companies.
It seems like a double whammy for the borrowers as on one side income has been hit due to COVID-19 pandemic and on the other hand there is a threat of increased tenure if they opt for RBI relief measure. In a note to customers, the country”s largest lender State Bank of India said “interest shall continue to accrue on the outstanding portion of the term Loan during the moratorium period”.
The accrued interest will be collected by the lender in the form of additional EMIs from those borrowers who opt for three months moratorium.

Explaining the financial burden with the help of an example, SBI said for a home loan of Rs 30 lakh with a remaining maturity of 15 years, the net additional interest would be approx 2.34 lakh equal to 8 EMIs for those borrowers who opt for the moratorium.

Similarly, it said, “for an auto loan of Rs 6 lakh with a remaining maturity of 54 months the additional interest payable would be Rs 19,000 approx equal to additional 1.5 EMIs”. It further said customer who do not want to defer recovery of instalments or EMI – no action is required and they may continue to pay in usual course.

However, SBI said, “customer who wants to defer recovery of EMI where collections of such installment is effected through National Automated Clearing House (NACH), please submit an application along with mandate for NACH Extension to stop NACH for these installments through an e-mail to the specified email ID”.

SBI issued the list of emails for sending the application for deferment of EMIs.

Releasing Frequently Asked Questions (FAQ) Indian Banks” Association (IBA) said that borrowers whose incomes have not been impacted should pay their EMIs in time.

“You may take the benefits under this (RBI) package if there is a disruption in your cash flows or there is loss of income. However, you must take into account that the interest on the loans, though not mandatorily payable immediately and gets postponed by 3 months, continues to accrue on your account and results in higher cost,” IBA, an association of banks, said.