All You Need To Know How Loan Moratorium Will Impact Your Home Loan, Car Loan EMIs

The loan moratorium has increased to 28 September following the Supreme Court’s decision. That is, till September 28, if you have not paid the installment on your home loan and car loan, then your financial health i.e. credit score will be ineffective. A bank will not be able to put a loan into a non-performing asset (NPA) if the installment is not repaid.

Now, many people are getting questions from this whether it will be beneficial or not? Can they use this money elsewhere by taking advantage of Moratorium? On this, we tried to understand the whole issue, and also know what will be in your benefit?

First of all, let’s understand what is Moratorium?

• The lockdown occurred after Corona. Businesses stopped. Many people lost their jobs. In such a situation, it became difficult to repay the loan installments. The Reserve Bank then granted loan moratorium. That is, installments on the loan were postponed.
• RBI first gave Moratorium on installments on all term loans till May 31, 2020 and then extended this period by three months to 31 August. That is, even if the installment is not paid for six months, the credit score will remain inoperable.
• In August, the Reserve Bank refused to increase the moratorium further. Also said that if anyone still has problems then he can get the loan restructured. Banks were also exempted for this. So that the process of repaying fresh installments can be decided.

What decision did the Supreme Court give and why?

• There was a dispute over the Moratorium. If you do not pay the installment by taking advantage of the moratorium on a loan, then the interest for that period will be added to the principal. That is, now the principal + interest will be charged. The issue of interest on this interest is in the Supreme Court.
• Another relief has been sought in the Supreme Court. The petition said that the situation has not improved yet. In such a case the moratorium should be increased. The Supreme Court has extended the moratorium till September 28 only after hearing these arguments.
• The Central Government has also been asked to suggest a new formula of relief in two weeks. For this, a committee has been formed under the chairmanship of Rajiv Maharishi. It will communicate with banks as well as related parties and give its suggestions to the central government.

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Is it right to take advantage of moratorium?

• BankBazaar.com CEO Adil Shetty says that if you have suffered a lot due to Corona, then it is a relief for you. But the borrowers should keep in mind that the benefit of moratorium will continue to attract interest on the outstanding amount.
• According to Shetty, if you did not pay the installment for three months, your loan repayment period would be increased by one year. That is, if you had taken a loan for 15 years and did not pay the installment for three months, then now the loan will continue for 16 years.
• They suggest that if your loan is in the initial stage then today’s relief for you will become tomorrow’s trouble. In such a situation, if you have finished all the way of paying the installment, then only you take advantage of the Moratorium, otherwise.

So did the RBI not provide any relief?

• It would be wrong to say so. The RBI has given permission to all banks to restructure the loan. But it has also said that loans which have been affected due to Kovid-19 will be allowed to be restructured by extending the period of two years.
• Regarding corporate loans, the Reserve Bank had constituted a committee under the chairmanship of KV Kamath, former chairman of ICICI Bank, to set conditions for granting restructuring benefits to borrowers.
• The debt of Rs 15.52 lakh crore from Covid is under stress. A loan of about Rs 22.20 lakh crore was already due to go into NPA. That is, 72 percent of the loans given by banks are going into the category of bad loans.

What has the Kamath Committee report suggested?

• According to the ICICI Direct Research Report, the committee has identified 26 sectors, which have had the greatest impact on loans to Kovid-19. A detailed plan has been prepared for restructuring their loans.
• This expert committee has fixed corporate-related ratio limits for every sector, such as EBIDTA, DSCR, Current Ratio, ADSCR etc. They are related to the earnings and profits of companies.
• Research report says that these 26 sectors have been given a total loan of Rs 37 lakh crore, out of which loan restructures can be in the range of 15-20%. This step is also good for the banking sector, otherwise most loans would have to be put into NPAs.