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WHAT IS A MORATORIUM?

As a relief measure for people in view of the coronavirus pandemic, the Reserve Bank of India (RBI) allowed a three-month moratorium on term-loan and credit card repayments. Lending institutions were directed to defer the EMIs of their customers opting for this moratorium scheme. But what is a moratorium and how does it work? Let’s take a look.
 
A moratorium is a temporary suspension of activity until future events warrant lifting of the suspension or related issues have been resolved. Moratoriums are often enacted in response to temporary financial hardships.
 
How does a moratorium work?
 
A moratorium is often effected in response to a crisis that disrupts normal routine. In the aftermath of earthquakes, floods, droughts or disease outbreaks, an emergency moratorium on some financial activities may be granted by a government or the central bank. It is lifted when normalcy returns.
 
What is an example of moratorium?
 
Here are some of the examples of moratoriums:
 
Coronavirus pandemic: The novel virus (Covid-19) outbreak, which left over a million people infected across more than 180 countries, caused several nations to implement a lockdown of their towns and cities. The highly contagious disease rocked the global markets and led the economies to a recession. On March 23, the government of India imposed a lockdown in the entire country to combat the virus. The move led to unaccounted job losses, grounding of flights, train and bus services as well as businesses took a hit. Taking stock of the situation and in response to the temporary financial hardship, the RBI on March 27, 2020, said all lending institutions, including banks and housing finance companies, will have to give their borrowers a three-month moratorium on term loans. The moratorium was for payment of all instalments falling due between March 1 and May 31, 2020. According to the RBI, the deferred instalments under the moratorium would include the following payments falling due between the said period:
 
a) principal and/or interest components;
 
b) bullet repayments;
 
c) equated monthly instalments (EMIs);
 
d) credit card dues.
 
YES Bank moratorium: On March 5, 2020, the RBI imposed a 30-day moratorium on YES Bank. Under the terms of the moratorium, deposit withdrawals by customers of the bank during this period were capped at Rs 50,000 per person.
 
What is a moratorium period?
 
A moratorium period is the time during a loan term when the borrower is not required to make any repayment. It is a waiting period before which repayment of EMIs resumes. Normally, the repayment begins after the loan is disbursed and the payments have to be made every month. However, due to the moratorium period, the payment starts after some time.
 
 Education loans provide this feature. This is because education loans are repaid by students after they start earning. There might be a time lag between their completing studies and before getting a job. That is why a provision for moratorium period is provided.
 
Benefits of paying loan within the moratorium period
 
If a customer has the liquidity, they should not opt for a moratorium. Repaying the loan amount is advised as interest continues to accrue on the loan amount even during the moratorium period. Repaying helps reduce the interest cost.
 
 FAQs on RBI’s EMI moratorium
 
 Which lenders are allowed to offer the RBI’s EMI moratorium?
 
 The moratorium can be extended by any commercial bank, including regional banks, rural banks, and small finance banks. It can also be offered by cooperative banks and non-banking financial companies (NBFCs). Any all-India financial institution can offer the moratorium.
 
Will EMI deductions be automatically deferred or does the borrower have to opt for it?
 
 The RBI has permitted banks to decide how they want to offer the moratorium to their customers. Some banks ask you to raise a request to ‘opt in’ for the moratorium, without which it is understood that you wish to continue with your normal repayment cycle. Some other banks have set moratorium offer as a default option for some products, so you need to raise a request to ‘opt out’ of the scheme if you wish to keep your repayment cycle unchanged.
 
 By when can the borrower opt for the EMI moratorium offer?
 
 Three days prior to the loan amount being deducted.
 
 Is this a waiver of EMIs?
 
 This is not a waiver but a deferment of EMIs in such a way that the repayment tenure and due dates are extended by 3 months from the expiry of the moratorium.
 
 Does the moratorium include both interest and principal components of the loan?
 
 Yes, the moratorium includes both the interest and principal component of your EMI.
 
From when is the RBI moratorium applicable?
 
 The moratorium is applicable on loans that are outstanding as of 1 March 2020.
 
 How can I opt for the RBI moratorium?
 
If your bank has advised you to raise a request for availing of the moratorium offer, you can visit its website or click on the link shared by your bank and fill a form therein to opt for the scheme. You may also visit the bank to raise this request. If your bank has set moratorium as the default choice for the type of loan you have taken, and you do not wish to avail of the scheme, you need to visit the bank’s website and fill a form to opt out of the scheme.

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