If you hold a home or personal loan and was overjoyed when the Reserve Bank of India (RBI) announced a ‘three-month moratorium’ on loan repayments due to the COVID-19 pandemic and its fallout, it’s time to wake up and read the fine print.
Interest will continue to accrue on the three-month period of the moratorium, which means you will just end up paying more as interest in the long run. Last Friday, as part of a string of measures to soften the economic impact of Covid-19, RBI governor Shaktikanta Das had announced a string of measures, including a three-month moratorium on all term loans between April and June.
While this means that payment of term loan EMIs for April, May and June may be paid only after June, the banks have announced that the interests will continue to accrue. “You may take the benefits under this 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 three months, continues to accrue on your account and results in higher cost,” explained the Indian Banks Association (IBA) in a FAQs released on Wednesday.
The nation’s biggest lender, State Bank of India, has announced, “Interest shall continue to accrue on the outstanding portion of the term loan during the moratorium period." ICICI Bank, like others, is offering customers a choice of either paying their loans and credit as per usual timeline, or opt for a moratorium, but warns, “the applicable interest on the amount outstanding will continue to be charged during the period of moratorium.” It further makes it clear that “the payment schedule would be extended to recover the postponed instalments which will include the outstanding principal and interest accrued.”
Some private banks like Axis Bank are yet to come out with their procedures, but most are likely to follow a system where those who want to opt for the three month breather will have to apply separately for the same.
While the government's idea was to give relief to people and small businesses facing a disruption in their cash flow due to the lockdown and other factors, the fact is that it eventually leads to increased tenure of your loan, as well as a higher payout, should you opt for it.
The only benefit, so to speak, then is that any default during this three-month period, does not get reported to the credit bureau. The three-month ‘moratorium’ is also available on credit card dues, as per the government mandate. “(Normally for credit cards) there is a requirement to pay minimum amount and if it is not paid the same gets reported to credit bureaus. (But) in view of the RBI circular, the overdues in the credit card account do not get reported to the credit bureaus for a period of three months,” explains IBA.
