As India
struggles to get back on its feet in the rest of the world, the Reserve Bank of
India is exploring ways to make the life of the common man less stressful.
The first EMI moratorium was announced on 27 March 2020
and was to cover debt repayment between March 1 and May 31. As the COVID-19 pandemic still continues, it was clear that postponement expansion was needed. That
is why today (22 May 2020), RBI Governor Shaktikanta Das extended the
moratorium on loan repayment saying - “In view of the expansion and continued
disruption of lockdown due to COVID-19, the decision to allow lending
institutions has been taken. From June 1 to August 31, 2020, another three months
to extend the moratorium on term loan installments.
How does an extended EMI moratorium help?
About
122 million people lost their jobs due to the outbreak of COVID-19. To add to
this, self-employed individuals are struggling to make ends meet due to loss of
income during the epidemic. If you are wondering, about 51% of India's
workforce is self-employed! This means that a large part of India's working
population is now finding it difficult to manage its expenses and pay back its
debts.
The
additional 3-month extension would provide some much-needed relief to these
individuals. They will now be able to take out their loans such as car loans,
home loans etc. If they miss an EMI payment then they run the risk of
negatively affecting their credit score.
Now
that the loan is deferred for 3 months, and money is not deducted from their
bank accounts, most people will have little money to watch them until things
start appearing.
Important points to keep in mind about EMI moratorium
Although the RBI EMI moratorium is
good news for many people, what should you know here-
· The EMI moratorium is not a mandate, it is a
competent provision. Banks have the right to decide whether they want to follow
it or not. Individual banks will also be allowed to decide whether this moratorium
will be extended to all borrowers.
· If you have decided to
avail the moratorium, the EMI will be extended with interest applicable to your
outstanding principal amount during the unpaid time. This will increase your
overall interest cost. If you have the money to manage your loan EMI, it is
best to stick to the original repayment schedule, especially if you have a
notable outstanding loan amount for a loan against a home loan or property.
· The moratorium prevents
payments for principal and / or interest components; Bullet repayment; Equal Monthly Installments (EMIs) and credit card dues.
Repo rate reduction
Apart from announcing the moratorium, RBI also announced
a drastic reduction of 40 basis points in the repo rate to 4%. The reverse repo
rate has also been reduced by 40 basis points to 3.35%.
Repo rate is the interest rate that RBI charges for the
funds to be given to banks. This drastic reduction in repo rates will also
reduce the lending rates to banks. Lower lending rates will give people hope to
think about reinvesting. It is also said that EMI will come down on home, auto,
personal and term loan rates in the near future.
