To give a relief to people who may have suffered a hit on their income due to the Wuhan Coronavirus pandemic, the Reserve Bank of India had on 27th March had permitted the banks to allow a moratorium of three months on EMI payments of all term loans. Following the advisory of the regulatory bank, several banks have now announced that their loan customers can defer payment of EMIs for three months. As RBI has not directly deferred the EMI payments, and ‘permitted’ the banks to defer the same, each bank will have to announce the EMI moratorium individually, and each bank may adopt different process to implement the same. Accordingly, banks have started issuing such notifications.
State Bank of India, India’s largest bank, tweeted yesterday, “In terms of RBI COVID 19 regulatory package, SBI has initiated steps to defer instalments and interest/EMIs on Term Loans falling due between 01.03.2020 to 31.05.2020 and extended the repayment period by 3 months.”
SBI has adopted an opt-in system for the moratorium, which means customers who want to defer their EMI payments will have to inform the bank about their intention. For those loans where EMIs are collected through National Automated Clearing House (NACH) or Standing instructions, customers are required to send an email to the bank along with a duly filled annexure. The respective email ID for various locations and annexures are available on this webpage of the bank. Customers who want to continue paying EMIs need not take any action.
Largest private sector bank ICICI Bank has also given their customers the option of opt-in or opt-out of the moratorium scheme for EMI payments. The bank has enabled the moratorium automatically for certain category of loans, and those who want to continue pay their EMIs for loans will have to Opt-Out of the moratorium by sending an SMS or e-mail. Such loans are Kisan Credit Card (KCC), Farm Equipment (FE), Self-Help Group (SHG)/Joint Lending Group (JLG)/Loans given through Business Correspondent (BC), Jewel Loan, Corporate Farmer Finance, Business Lending – Unsecured (Current Account Over Draft/Small Business Loan/Roaming Protect/Loan Against Credit Card Receivable), Dealer Funding, Working Capital/Trade Advance to Auto Dealers, Commercial Business, Working Capital/Trade Advance to Commercial Business customers, Consumer Finance, Two Wheeler Loans. If customers of these loans do not Opt-Out, it will be assumed that they have opted for the deferment. For all other types of loans, the customers will have to Opt-In for the moratorium.
Bank of Baroda has also published a FAQ on the moratorium scheme, which says that customers will have to approach their base branch to stop Standing Instruction or NACH mandate by Mail of letter.
Similarly, HDFC Bank also has issued guidelines for the scheme. Customers who want to defer their EMI or interest payments during the lockdown period may request for the same. The bank also says if customers skip payment of EMI, it will be assumed that they are opting for the moratorium. Loan customers of IDBI Bank can defer their EMI payments by sending an email to firstname.lastname@example.org latest by April 3, 2020.
Several other banks have announced the implementation of the moratorium scheme, while others are in the process of doing so. It is expected that most other banks will start rolling out the scheme very soon.
The EMI moratorium scheme is for three months, March to May. but if some customers have already paid the March EMI, they will get moratorium of only two months. Some banks have allowed refund of already paid March EMI, if customers want.
Impact of EMI moratorium
Although the scheme allows loan customers to defer their EMI payment, it is important to know its implications. Even though one need not pay the monthly instalments, interest will continue to accrue on the loan account. And due to the deferment, the loan tenure will get extended by 3 months, resulting in increased interest payment. This means, total interest payable on the loan will go up, which will eventually result in an increase in the number of EMIs to be paid to repay the loan completely.
According to an illustration by SBI, for an auto loan of Rs.6 Lacs with a remaining maturity of 54 months, the additional interest payable would be Rs.19,000 approx, which will equal to an additional 1.5 EMIs. And, for a home loan of Rs.30 Lacs with a remaining maturity of 15 years, the net additional interest would be approximately Rs.2.34 Lacs equal to 8 EMIs.
Therefore, all banks have advised that this scheme should be used by only those people who have faced a hurdle in cash flow during the lockdown period and overall downfall in business during the coronavirus pandemic. For those people who are not affected financially, like salaried people, they should not opt for the moratorium, and should continue to pay their dues as scheduled.