The Reserve Bank of India announced that banks and Non Banking Financial Companies (NBFCs) are allowed to offer customers a 3-month moratorium on all term loans, which includes any loan which has a fixed repayment tenure. A moratorium is a period of time in which the Equated Monthly Instalment (EMI) of the loan doesn’t have to be paid. It is also called an ‘EMI holiday’.This would be applicable for home loans, auto loans, education loans, personal loans, consumer durable loans, loan against property, etc. Regional banks, rural banks, cooperative banks, and housing finance companies are allowed to offer this to customers. This will not affect the borrower’s credit history nor the asset classification of the lender. It will also not change the existing terms and conditions of the loan.

The actual conditions of the moratorium will depend on the bank that implements it. Banks have to receive approval from the boards that govern them to implement the RBI policy. If it is implemented, it would mean that EMIs are deducted from the borrower’s bank account only when the moratorium period expires. The tenure of the loan may get extended by 3 months. Additional interest of 3 months on the current outstanding loan amount will have to be paid, however, it is for the lenders to decide if it has to be paid on one instalment or as additional EMIs.+

The RBI offered this moratorium period as a means to tide over the impact of the Covid-10 pandemic on the economy and ease financial challenges for borrowers of term loans.

However, this does not apply to credit card payments.