What is EMI Holiday and 3 Months Moratorium announced by RBI in March 2020?

EMI Holiday or Moratorium Period refers to the time period during which an individual need not pay an Equated Monthly Installment (EMI) on the loan taken by him or her. EMI is a fixed amount paid by the borrower to a lender or bank at a specified date every month. This article throws light on reasons behind the Government’s decision to announce the EMI holiday and the measures announced under this moratorium.

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In light of the current humanitarian crisis caused by COVID-19, India had gone under the first phase of lockdown for 21 days, which was announced by the Prime Minister of India in March. This unavoidable precautionary measure taken by the Government to save lives has resulted in huge economic losses especially to self-employed individuals which have made it difficult for them to repay the loans. Hence the Finance Ministry asked the Central Bank, RBI suggesting a moratorium on EMI, for a few months.

What are the Measures Announced by RBI on March 27th, 2020 to tide over the COVID-19 crisis?

For providing economic respite to many people, RBI has announced measures on March 27, 2020, which are listed below.

  1. There will be a 3 months moratorium on repayment of loans, it means borrowers need not pay loan EMI installments for 3 months.
  2. As per this new RBI directive, EMI would not be deducted from the individual’s bank account.
  3. Borrowers’ credit will not be downgraded.
  4. The risk classification of the loan will not be affected.
  5. There will not be any financial penalties.
  6. There will not be any increase in interest rates.
  7. There won’t be any change in the terms and conditions of the loan.
  8. All the banks and Non-Banking Financial Companies (NBFC) are permitted to execute the above rules on repayment of term loans outstanding on 1st March 2020.

Latest Updates

  1. Reserve Bank of India (RBI) had extended the moratorium on payment of loans till August 31. There are requests from many quarters to extend the moratorium. Apex Transporter’s body AIMTC has requested the Reserve Bank of India (RBI) to extend the moratorium till December 31, 2020, due to weak demand and the dire situation of the transport sector can affect more than 20 crore people.
  2. Reserve Bank of India (RBI) and the Government of India informed the Supreme Court on September 1, that the moratorium period on repayment of loans is extendable by 2 years due to the pandemic.
  3. Supreme Court of India passed an interim order on 3rd September, saying that accounts not declared as Non-Performing Assets (NPA) as on 31st August shall not be declared as NPA’s till further notice.
  4. RBI governor recently announced that banks can extend the loan moratorium by 12 months, 6 months, or 3 months.RBI had set-up a committee under K.V. Kamath to recommend parameters for restructuring stressed loans. The committee was set-up on 7th August by the RBI. As per the recommendations of the K.V. Kamath committee, 26 sectors were picked for loan restructuring.

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