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Loan Moratorium Cashback – Know Here Everything EMI Loan Moratorium Interest Relief

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6 min read

EMI-Loan-Moratorium-Interest-Cash-Back

The Covid – 19 pandemics-related lockdown inflicted tremendous financial stress on our economy and affected the income of the common man. Understanding the anxiety of loan borrowers, during this period, RBI offered loan moratorium facility to aggrieved borrowers.

The loan moratorium implies the borrower is relieved of paying EMIs for a specific period (a kind of EMI holiday).In giving major relief to borrowers, government announced cashback benefit or interest waiver(compound interest) to all eligible borrowers. Loan moratorium is implemented initially for three months period that was later extended by another three months till 31st August 2020.

How does loan moratorium pan out?

Loan moratorium offered by RBI was for six months between 1/03/2020 to 31/08/2020. During this period, with a vision to give relief to borrowers, the Central government directed the lenders to waive off interest on interest (Compound interest) on the principal amount and collect only the simple interest. Further, the lenders can claim the reimbursement (of the difference between the simple interest and the compound interest) from the central government.

The loan moratorium scheme initiated by the RBI is implemented across the board to all the segments of standard loans. The scheme applies only to loans up to Rs. 2crore, whereas loans above Rs. 2crore are not eligible to avail the loan moratorium facility.

Who can avail the loan moratorium scheme?

The eligible borrowers who stand to benefit from the loan moratorium scheme are:

  • MSME loans (under Rs. 2 crores)
  • Housing loans
  • Education loans
  • Credit card dues
  • Consumer durable loans
  • Automobile loans
  • Personal loans
  • Consumption loans
  • If the outstanding loan amount exceeds Rs 2 cr, the scheme doesn’t apply to the borrower, and he/she gets no relief.
  • As on February 29, 2020, the loan account(of the borrower) should be standard(no NPA).
  • Loans availed after- February 29, 2020, can not benefit from the scheme.
  • A borrower is eligible to the loan moratorium scheme even when he/she has fully(6 months), partially, or not at all availed the moratorium limit on EMIs.

In short

  • Borrowers have to pay: Only the ‘Simple interest’ on the outstanding loan as on 29th February 2020.
  • Borrowers have paid: Compound interest on the outstanding loan as on 29th February 2020.
  • Cashback: The difference between the compound interest and the simple interest for the moratorium period of six months (March to August).

The process so far

The method employed by the government to provide relief is:

  • Consider the outstanding loan amount as on 29th Feb 2020
  • Take into account the interest rate to be charged(vary on different types of sanctioned loans)
  • Now, calculate the compound interest on the loan for six months(moratorium period)
  • Calculate the simple interest on the same amount for six months(moratorium period)
  • Relief amount- Difference between the compound interest and the simple interest (for six months period)
  • By November 5th, 2020, the relief amount will be credited to the borrower’s account.
  • The banks will get the reimbursement from the government for the relief amount.

Example Calculation

Loan amount as on 29thFeb, 2020

50,00,000

50,00,000

10,00,000

5,00,000

3,00,000

Interest rate as on 29thFeb 2020

8.0%

8.0%

10.0%

15.0%

36.0%

Outstanding tenure as on 29thFeb 2020 (in months)

240

180

60

240

240

Moratorium Availed (in months)

6

3

6

             6

6

Compound Interest during the Moratorium period

2,03,363

1,00,668

51,053

38,692

58,216

Simple Interest during the Moratorium period

2,00,000

1,00,000

50,000

37,500

54,000

Ex-gratia payment to be credited to the loan account

(the amount to be credited to borrowers loan account)

3,363

668

1,053

1,192

4,216

Points to remember

  • Under the scheme, the financial institutions will auto-credit the ‘Relief amount’ in the borrower’s account.
  • Only the outstanding loan as on 29th Feb 2020 will be considered for computation.
  • Every loan borrower from financial institutions gets the relief irrespective of applying for the moratorium or not.
  • For different types of loans such as automobile, consumer loans, education loans, personal loans, the interest rates vary (depends on the loan agreement)
  • The loan moratorium scheme is applicable only to loans (amount) up to Rs 2 Cr and not higher.
  • The relief amount will be credited on or before 5th November 2020.
  • A grievance redressal mechanism will be established for the process, and significant responsibility is assigned to SBI.
  • The financial institutions can claim reimbursement from the Central government latest by December 15, 2020 subject to audit.

Loan Moratorium Cashback FAQs:

1. Why was the loan moratorium scheme announced?

To mitigate the debt burden on different types of borrowers due to economic disruptions caused by Covid – 19 pandemic, RBI announced the loan moratorium scheme. Thus to give relief to the individuals or businesses (borrowers) the scheme was launched.

2. If the loan account is closed during the moratorium period, is it still eligible for benefit under the scheme?

Yes, under the scheme a borrower will get the benefit or relief but only for the period till the account was alive. For example, if the loan was paid on 30th July 2020, then the borrower will get relief only for five months rather than the entire six months.

3. Which facilities are eligible to avail the benefits under the scheme?

All types of term loans (including retail, crop loans, agricultural term loans, and loans under pool purchases), and overdraft/cash credit are eligible to get the financial benefit under the scheme. The scheme applies to all the accounts, with standard assets as of March 1st, 2020.

4. How the financial institutions recover the loan amount?

The loan is rescheduled by the extension of the repayment tenure of the instalments. The scheme covers all the term loans and in all segments.

5. Does the moratorium result in credit downgrade?

No the moratorium announced by RBI will not impact the credit ratings of an individual/company.

6. Is moratorium scheme a waiver on the interest amount or principal amount due on loan EMIs?

The moratorium scheme is not any waiver on loan EMIs. The borrower will have to pay the accumulated interest on the loan during the moratorium period. Post moratorium the amount (accrued interest) will be paid as per the adjusted EMI.

7. What happens to the borrowers who do not qualify for relief as per RBI guidelines?

The borrowers who are not eligible for a moratorium will have to make the payment (EMIs) as per the loan agreement. Any delay in repayment will result in a credit downgrade.

8. Will the borrower be charged for overdue charges during the six months of moratorium period?

No overdue charges will be levied by the financial institutions for the moratorium period between 1st March 2020 to 31st August 2020.

9. Can a borrower get the moratorium automatically?

No a borrower does not get the moratorium automatically. A borrower needs to apply to the moratorium, usually seven days before the EMI due-date to avail the benefit.

10. Will financial institutions charge interest on the deferment period?

Yes as per the RBI guidelines, interest will continue to accumulate on the outstanding loan during the moratorium period that will be adjusted later after the moratorium period is over.


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