The COVID-19 pandemic has caused disruptions in the cashflows of the businesses and even the salaried working in certain sectors such as hospitality, aviation and tourism. Many face a bleak future with the possibility of losing their jobs. As a temporary relief measure, the Reserve Bank of India (RBI) recently announced that banks can offer a three-month moratorium on all the outstanding term loans falling due from March 1 to May 31 and the extend repayment period by three months. These include home, personal, education and auto loans. Some banks have started implementing the moratorium and have specified the procedure to opt for the same. Here’s how you can avail the loan moratorium offered by banks.
How do you apply?
Customers servicing a loan with the State Bank of India can opt for the loan moratorium scheme by submitting an application form on email in the prescribed format that is available in the bank’s website. Along with this, the customer also needs to submit the National Automated Clearing House (NACH) extension mandate form. It’s important to note that the total repayment period will be extended by three months over the original repayment period. Also, interest will continue to accrue on your loan account during the period of the moratorium. As Moneycontrol had pointed out earlier, this is not a loan holiday. It’s a mere postponement of your loan; you get a relief for three months but you’ve got to pay your loan eventually.
HDFC Bank customers seeking a moratorium need to apply on the bank’s website or call 022-50042333, 022-50042211, and follow the instructions.
In case you are a Canara Bank customer, you might have received an SMS with instructions to avail of the loan moratorium. According to the SMS, customers have to respond with a ‘no’ to a given number so that the electronic clearing system (ECS) payment mandate, post-dated cheques, standing instructions given to bank will be cancelled and loan repayment can be stopped for three months.
If you are an IDFC First Bank customers, you need to send an email application with the loan details to the bank for taking the moratorium.
What if I want to continue paying my EMIs?
For the above-mentioned banks, in case you don’t contact your bank for a moratorium then it’s assumed you will continue to pay your EMI as per schedule.
For IDBI Bank customers, relief is granted automatically to all accounts. However, if your cashflow is not impacted on account of Covid-19 and you want to continue paying your EMIs as per schedule, you have to write an email to email@example.com by April 3, 2020. In this email, mention your loan account number, borrower details and state that you wish to opt out of the instalment moratorium facility offered by the bank.
Other banks are expected to offer moratorium on EMIs using similar methods.
What about the EMI already paid in March?
Banks are initiating steps to defer the installments and EMIs on term loans falling due between March 1 and May 31. However, there are several instances of customers’ accounts being debited in the month of March for their EMIs. In such a situation, some of the banks are refunding the March instalment. For instance, SBI will refund the EMI amount after submitting the ‘Deferment of recovery of instalment for moratorium scheme’ application form.
However, not all banks are going to refund the March instalment if it’s already paid by the customer. For instance, IDBI bank customers will get the relief only for the EMI payable in April and May 2020 if the amount is already debited for March 2020.
Should you opt for this moratorium?
The moratorium has been announced primarily for providing relief to those who cannot repay their term loans due to the adverse impact of the lockdown. As per the RBI guidelines regarding the moratorium, interest will continue to accrue on the outstanding amount of term loan even during the moratorium period.
Naveen Kukreja, CEO and Co-founder of Paisabazaar.com says, “This scheme will increase the total interest cost for those rescheduling their loan repayments with the moratorium. So, existing borrowers should continue with their original loan repayment schedule if their cash flows allow them to do so.” It will save you from incurring higher interest cost on your loan.
Harsh Roongta, SEBI registered Investment Adviser says, “This scheme is not much of a concession for anyone whose cash flows are not likely to be immediately impacted on account of the lockdown. The interest for the three-month period may need to be paid as a lump-sum in June 2020.”
For a home loan of Rs 30 lakh with SBI with a remaining maturity of 15 years, the net additional interest would be Rs 2.34 lakh (approximately) if you opt for the loan moratorium. The silver lining here is that your credit score won’t get impacted even if you opt for the moratorium. And RBI’s massive rate cut will also provide relief to home loan customers.