We have launched our mobile app, get it now. Call : 9354229384, 9354252518, 9999830584.  

Current Affairs

RBI’s extension of loan moratorium

Date: 02 June 2020 Tags: Monetary Policy & RBI

Issue

The Reserve Bank of India (RBI) announced an extension of the moratorium on loan EMIs by three months, i.e. August 31, 2020. The earlier three-month moratorium on the loan EMIs was ending on May 31, 2020.

 

Background

Extension in moratorium on term loan installments has provided a major relief to borrowers and companies facing cash flow problems, resulting from reduction in income or no income due to job losses. 

 

Details

  • For leveraged companies facing the cash crunch, the moratorium provides survival time. The expectation among the regulators and the banking fraternity is that once the lockdown eases fully in due course, economic activity will come back on track, enabling restoration of income levels of people affected by the sudden stall.

  • The RBI permitted banks and NBFCs to allow a further 3-month moratorium, on the payment of instalments in respect of term loans outstanding as on March 31, 2020.

  • Lenders have also been allowed to convert the accumulated interest into a funded interest term loan to be repaid by March 31, 2021.

  • Individuals and companies who have availed term loans — such as home loans, car loans, corporate loans and credit card loans — can avail or seek extension of moratorium facility.

  • For large lenders like State Bank of India, ICICI Bank, Kotak Mahindra Bank and Axis Bank, the percentage of loans under moratorium is under 30 per cent. For Bandhan Bank, it is as high as 71 per cent since it lends primarily to micro units.

  • Banks expect more people to opt for moratorium facility as sectors such as aviation, tourism, hospitality, transportation and start-ups have seen not just salary cuts but also layoffs.

  • While the Indian economy is expected to experience a significant contraction this year, any revival in economic activity is seen to be a long-drawn process.

  • Interest will continue to accrue on the outstanding portion of the loan during the moratorium period. For someone not facing any cash flow issues, moratorium is of no benefit.

  • Banks are unlikely to face problems for the next three months as regulatory relaxations, will provide them a breather till September in recognising NPAs but NPAs are expected to shoot up from the current level of around Rs 10 lakh crore, when these loans come up for repayments.