RBI’s 3 months Moratorium on Business Loans, now extended to 6 months

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Moratorium period increased for another 90 days

As on 22 May 2020, RBI’ Governor announced that the term loan moratorium period for the financial institutions have been extended to 31 August 2020. This makes the total moratorium period for 6 months by adding another 90 days to the existing tenure. The RBI’s Governor added that the lending institutions are permitted to restore the margins for working capital to the original margin by 31 March, 2021. This measure shall provide additional liquidity support to the MSME sector. To avail this moratorium facility shall be totally upon bank’s discretion and it is not a mandate for any borrower.

Amid Coronavirus (COVID-19) outbreak and India’s lockdown, the Reserve Bank of India (RBI) allowed various financial institutions to offer a moratorium of three months on business loan, term loan or working capital loan. As this period ends, the deferred interest rate of three months will be collected immediately by the lender. RBI introduced this banking feature to help companies, enterprises, entrepreneurs and self-employed professionals facing liquidity issues.

The moratorium period that is effective from 1 March, 2020 till 31 May 2020 covers all EMIs or payments due for this period. This means that all financial institutions allow the borrowers to collectively pay their three-months EMIs for the month of March, April and May after 31^st May 2020. If you opt and qualify for a moratorium, private or public sector banks, NBFCs, Co-operative Banks, Micro Finance Institutions (MFIs), Small Finance Banks (SFBs), Regional Rural Banks (RRBs), Housing Finance Companies (HFCs) or any other financial institutions shall allow a moratorium of three months for business loan borrowers.

Soon after the moratorium period ends, corporates or borrowers who opted for moratorium shall have to pay four months’ collective EMIs plus interest rates on their loans.

Paisabazaar advises you to avail this moratorium feature only if your income and cash flow has been severely impacted and you are unable to pay loan EMIs on time. Before availing Moratorium, please check the interest rate you need to pay that is collective of four months plus the EMI amount. We suggest you to pay regular EMIs of your loan, if there is not liquidity or cash flow concern.

Things to Know:

• What is a Moratorium? Moratorium is a lawful agreement agreed to borrowers to postpone payment
• Moratorium period announced by RBI is from 1^st March 2020 – 31^st May 2020, now extended to 31st August 2020
• Moratorium is not a mandate; it depends on respective bank whether you qualify or not
• Interest is accrued and EMI payments will accumulate, it’s always better to pay-off if there is no liquidity or cash flow issue
• RBI has directed credit bureaus that due to moratorium, credit score should not get hampered or reduced
• Customers has the option to discontinue the Standard Deductions (SI) for EMI’s deductions
• To avail moratorium, loan borrower simply needs to write an email or contact the respective bank, NBFC or concerned lender
• If EMI has already been debited by the lender, it will be refunded to borrower’s account
• Availing moratorium will not change any terms and conditions of existing business loans, term loans or working capital loans

Example of a Moratorium:

• Loan Amount: Rs. 10,00,000
• Interest Rate: 18% per annum (fixed)*
• Repayment Tenure: 3 years
• Interest per month: 8,374
• EMI per month: Rs. 27,778 (excluding interest rate)

Moratorium Availed vs Not availed

Date	Details	If Availed	If Not Availed
31 March 2020	EMI to be paid	Nil	Rs. 27,778 (EMI) + Rs. 8374 (Interest rate) = Rs. 36,152
30 April 2020	EMI to be paid	Nil	Rs. 27,778 (EMI) + Rs. 8374 (Interest rate) = Rs. 36,152
31 May 2020	EMI to be paid	Nil	Rs. 27,778 (EMI) + Rs. 8374 (Interest rate) = Rs. 36,152
1 June 2020	EMI to be paid	Rs. 1,44,608 (EMI + Interest rate of collectively 4 months)	Rs. 36,152 and remains same for further months

*Note: Interest rate of 18% per annum is taken as fixed and GST and additional taxes shall be added on the mentioned amount.

Impact on Corporate Accounts

As per banking rules, if in case the financial entity is unable to pay the collective EMIs along with interest rate, the entity’s account shall be considered as SMA 1 (Special Mention Account 1). If not paid in 61 – 90 days, the account is considered as SMA 2. If still there are delays in payments, the account turns into a Non-Performing Asset (NPA).

Also Read: Coronavirus (COVID-19) Impact on Indian Business

List of Banks offering automatic relief

Below is the list of banks offering default moratorium or automatic relief to its customers availing business loans. This means that customers who have taken business loans will not have to pay EMIs for the month of March, April and May. No automatic EMI will be paid to the bank or lender during this period. If in case you do not want to avail moratorium and wish to pay regular EMIs, you can visit the official website or mobile app, call the bank or send an email stating your request.

• Axis Bank
• Bank of India
• Deutsche Bank
• IDBI Bank
• ICICI Bank
• Central Bank of India
• UCO Bank
• Federal Bank
• Punjab & Sind Bank
• Standard Chartered Bank

For the rest of the banks and NBFCs, customers need to visit the official website, mobile app or send and email to place the request of ‘Stop paying EMIs’.

RBI made this announcement considering small business owners, self-employed and SMEs of the country. This three-months moratorium period shall help business loan borrowers in managing their savings and not putting them in a cash crunch situation. Moratorium period is considered as a ‘pause’ or ‘EMI Holiday’ in which loan borrowers need to cautiously take financial decisions and diligently plan to invest in the coming months amid the COVID-19 crisis.