What is The RBI Loan Moratorium? All You Need to Know About it

Coronavirus has extended its effects into every aspect of our lives. The major impact was on the financial decisions. With the world coming to a standstill during the pandemic lockdown, many have struggled to meet their expenses. The RBI loan moratorium came as a breath of relief during these crisis times.


What is The RBI Loan Moratorium?


In March 2020, the Reserve Bank of India (RBI) introduced a loan moratorium as an aid to help the struggling common man.

An EMI moratorium has been imposed on all term loans for three months, i.e., from March 2020 to May 2020. Later, this was extended for another three months until August 2020.


What do we mean by a moratorium? Well, simply put, a moratorium refers to a temporary halting of activities until further notice. Moratoriums are initiated to provide financial help during tough economic times.


Keeping the monetary problems faced by individuals during the pandemic, the six-month loan moratorium was implemented. It was to be effective for all types of loan borrowers like -

  • Home loans

  • Educational loans

  • Personal loans

  • Automobile loans

  • Credit card dues

  • Consumer durable loans


The RBI loan moratorium was to be carried out over the equated monthly installments (EMIs). Loan borrowers were exempted from paying their EMIs during these six months. The only condition was that the loan borrower has outstanding EMI as of March 1, 2020.


Loan borrowers had to actively opt for the EMI moratorium. That being said, the interest was not being waived off. Instead, it was being calculated as the accrued outstanding amount.


In addition to this, if an individual opted for an EMI moratorium, he had to pay additional interest for the moratorium months.


RBI has publicly announced that opting for an EMI moratorium will not negatively affect the credit score of the borrower. However, it would be made known when the borrower has applied for a moratorium.


This loan restructuring program was commenced with the intention of reducing some financial burdens on small loan borrowers.


Key Points to Know About Loan Moratorium


Here are some things you need to learn about loan moratorium-

  • Borrowers with a loan amount of less than two crore rupee will be able to benefit from it.

  • User accounts that have been declared as NPAs (Non-Performing Asset) as of the 29th of February, 2020, cannot avail of a moratorium.

  • There is a provision for receiving cash backs by those who have maintained timely payments without availing of the moratorium.

  • Those who have already opted for the moratorium will observe a possible reduction in the outstanding sum after the interest waiver has been credited. This will result in a lower EMI for the rest of the tenure.


The RBI loan moratorium is a deferment and not actually a discounted interest or concession.


Home Loan Moratorium in India


Home loan borrowers can also avail of the RBI loan moratorium scheme. Here are some benefits of opting for a home loan moratorium-

  • It gives you time to become more financially stable in order to pay the EMIs.

  • Opting for a moratorium before the repayment period gives time to handle other important and time-sensitive expenses. 

  • In no way does the moratorium period impact negatively your credit score. Therefore, one can apply for another loan even with a moratorium in their history.


How To Pay The Moratorium Period’s Interest?


There are two ways to pay back the accumulated interest after a moratorium period. They are briefly detailed below-

  • You can group the interest sum by splitting it and adding the split amount to the remaining EMIs. However, when you do this, your EMIs would increase more than they were before. This is because of the addition of the moratorium period interest.

  • Another way is to pay the moratorium interest after the payment of all your EMIs. This depends on the lender and their terms. You can either pay it in a lump sum or can pay it at a regular time interval.
    Once again, this depends on the lender and their terms.


Difference Between a Moratorium Period And a Grace Period


Moratorium periods should not be confused with grace periods. 


The time period that falls between the end of the credit card billing cycle and the due date of the payment is referred to as the grace period. The grace period is an interest-free time period. That is, the lender does not charge interest on the dues during this period.

There is no legal obligation that all financial lenders should grant some grace period.


We have already established that the RBI loan moratorium is more of forbearance. That is, there are no enforcements to pay interests during this period.


Supreme Court on Loan Moratorium


With RBI’s decision to implement a loan moratorium, the Indian Banks’ Association (IBA) has written a plea for the document to compensate for the compound interest waiver.


The Supreme Court too instructed the same as the RBI. It directed the lenders to not charge any ‘interest on interest’ from the borrowers. If the amount has already been charged, it would be refunded, adjusted, or credited to the borrowers’ accounts.

The court has declared that it is not going to intervene with the decision taken by the central government and RBI. 


RBI Moratorium 2021


RBI did not explicitly call for a moratorium in 2021 but gave a resolution option to borrowers. Those in need of loan restructuring can approach the lenders for the same. The banking institutions, however, can choose whether or not to offer a moratorium.

Experts believe that loan restructuring would help in relieving some financial stress on the system.


With the RBI loan moratorium period ending in August 2020, an option to restructure their loans was given to loan borrowers. This was to be done on the basis of the Restructuring Circular issued by the RBI at the end of August 2020.


Many sectors have been slowly recovering from all the losses incurred during the COVID-19 pandemic. The standstill state of the world has placed a heavy burden on the financial systems of the world. This effect was also seen on individual levels.


Small loan borrowers, especially, struggled to pay the EMIs while bearing the day-to-day expenses. To provide them some relief, RBI announced the loan moratorium. The goal was to allow some time for the borrowers to stabilize themselves financially.


The above information is to be solely considered as part of the topic research. Nothing written here is to be taken as the official decree by RBI or banking institutions. Reader discretion is advised. To learn more about the RBI loan moratorium and loan restructuring, kindly contact your bank.


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