Credit Card Queries : RBI moratorium

• The RBI today allowed banks to offer a moratorium on all term loans.
• The step was taken in light of the COVID-19 outbreak and the subsequent lockdown

A previous version of this copy said credit card dues were not covered under the RBI’s moratorium. This has, however, been changed to reflect new information that has come to light after the RBI’s guidelines were issued. Other changes have also been made to the copy to update fresh information.

The Reserve Bank of India (RBI) today allowed all financial institutions to allow a three-month moratorium for all term loans in light of the COVID-19 outbreak and the subsequent lockdown.

In effect, banks can allow all customers to not pay their monthly EMIs for a 3-month period, and the non-repayment will not hurt their credit score.

Here are all questions on this decision answered.

Q: My EMI is due soon. Will the payment not be deducted from my account?

A: The RBI has said it has permitted allowed banks to extend a moratorium.

“Lending institutions shall frame board-approved policies for providing the abovementioned reliefs to all eligible borrowers,” the RBI later said in its guidelines.

This means that individual banks will have to frame policies allowing relief to customers. Whether it will cover all customers or only customers that request for relief will be decided by individual banks.

However, SBI chief Rajnish Kumar in a conference call said that all EMIs on term loans stand cancelled.

Q: Will non-payment result in impact on my credit score?

A: Once relief has been granted by your bank, non-payment will not result in any impact on credit score.

Q: Which banks can offer this deferment to their customers?

A: All commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) can extend the moratorium.

Q: Is this a waiver of EMIs or a deferment of EMIs?

A: This is not a waiver, but a deferment. RBI has recommended that the repayment schedule and all subsequent due dates as also the tenor for such loans may be shifted across the board by 3 months.

“Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period,” the RBI said in its guidelines.

Q: Does this mean that I will have to pay all 3 EMIs at one go in June?

A: Unlikely, as the RBI’s statement suggests the tenor may be shifted. That is: the loan may end 3 months later than was originally slated. But more clarity is awaited on this.

Q: Does the moratorium cover both principal and interest?

A: Yes. It does. You will be exempt from payment of your entire EMI, including payment and interest for three months. This will be applicable on all loans outstanding as on March 1, 2020.

Q: What kind of loans does the moratorium cover?

A: The RBI policy statement explicitly mentions term loans, including agriculture term loans and crop loans besides retail loans.

Retail loans are typically home loans, personal loans, education loans, auto  and any loans that have a fixed tenure. They also include consumer durable loans, such as EMIs on mobiles, fridge, TV etc

Q: Does the moratorium cover credit card payments?

A: While credit cards are defined as revolving credit and not term loans, the RBI’s operational guidelines made it clear that credit card dues are also covered.

Q: Does the moratorium cover loans taken on credit cards?

A: The RBI guidelines do not address this specifically but since credit card dues are covered, it is likely that loans taken on credit card may also be covered.

Q: I have taken a project loan for setting up a factory. Can I not pay my EMI?

A: The RBI guidelines specifically mention retail loans. So a business loan is unlikely to qualify.

Q: What has the RBI announced for businesses?

A: The RBI has allowed deferment for interest payments for all working capital loans taken by businesses. This will be applicable in respect of all working capital facilities outstanding as on March 1, 2020. The accumulated interest for the period will be paid after the expiry of the deferment period. Moratorium/deferment will not be treated as change in terms and conditions of loan agreements and will not result in asset classification downgrade.