RBI Loan Moratorium News – Loan Moratorium For Small Borrowers – See Who Qualifies
Latest News Loan Moratorium?
For Pandemic Loan Moratorium Lenders to be Paid INR 974 Crore
The Union Cabinet on 19th Jan (Wednesday) 2022 sanctioned Rs. 973.74 crores for lending parties as reimbursement with respect to the loan moratorium that was deployed in the year 2020 because of the Covid-19 pandemic.
All March 27, 2020, the RBI (Reserve Bank of India) has declared a loan moratorium on paying loan installments falling between March 1 to May 31, 2020, to help in the difficult times of this pandemic. Later this was extended to August 31.
Financial corporations and NBFCs were ordered to credit the difference between CI (compound interest) and SI (simple interest) on loans up to Rs. 2 Crore by November 30, 2020.
SBI was chosen as the nodal agency for settling the payment of claims. They informed the government that they received consolidated claims of Rs 6473.74 crores from lending institutions.
The cabinet approved sanction of balance Rs. 973.74 crores to SBI towards reimbursement on 19 January 2022.
Updated Date: 26-01-2022
Extended Loan Moratorium: December 31
Due to the crop damage, sea fury, and Covid-induced lockdown, the Cabinet has extended the moratorium on foreclosure on agricultural, educational, dairy, and animal husbandry loans from all the financial institutions till December 31.
It will apply to the loans from various financial institutions and government agencies such as the Housing Board, Co-operative Housing Federation, Backward Classes Development Corporation, Vegetable and Fruit Promotion Council, Co-operative Banks, and Institutions under Section 71 of the Revenue Recovery Act, 1968.
The Reserve Bank of India and the Bankers’ Committee will be asked to extend the moratorium on the loans from national banks, private banks, NBFC, and MFI till December 31.
Updated Date: 15-11-2021
Supreme Court refuses moratorium plea by organizations of pre-schools
The Supreme Court, on Friday, refused to entertain a plea seeking an interest-free moratorium period for term loans for those running playschools. They also wanted that the EMI on their loans to be deferred till the corona situation subsides and wanted the Centre and RBI to support them.
A bench comprising Justices L Nageswara Rao and B.R Gavai said that it wasn’t within the realm of the court to provide what they were asking for and the relaxations they were seeking but could grant them the liberty to the petitioner to approach the RBI with his representation. Advocate Rohit Pandey appeared for the role of the petitioner.
Updated Date: 20-10-2021
Rajasthan Government to offer interest-free loans to the poor hit by the pandemic
Recently, the Rajasthan government announced a loan scheme for the poor people of Rajasthan whose business has been severely affected by Covid like cobblers, rickshaw pullers, carpenters, etc. Their income depended a lot on the daily movement and activity of people which got curbed due to the pandemic thus affecting their livelihood. The government launched a scheme to provide such people interest-free loans upto INR 50,000 with a repayment period of 12 months. The loan can be availed by 5 lakh people in the age group of 18 to 40 years and will be provided on a first come first serve basis.
Updated Date: 17-08-2021
Kerala asks for payment of GST dues and extension of moratorium
On Thursday, the finance minister of Kerala K.N. Balagopal has asked for a moratorium for the repayment of the loan for the small borrowers who are facing a financial crisis in this pandemic. He also raised another demand for the immediate payment of the GST compensation and similar issues in the recent meeting with Nirmala Sitharaman, Union Finance Minister, in Delhi. Kerala has a awaiting clearance of Rs 4,500 crore which needs to be cleared by the Union Government. Kerala has put forward another proposal that the GST framework of compensation, that is due in July of 2022, which must be increased for another 5 years.
Update Date: 19-07-2021
Loan Moratorium: Plea Rejection of Bank NPAs for Relief in Moratorium
On Friday the Supreme Court rejected the plea that was seeking the moratorium on the accounts declaration as NPA, i.e., Non-Performing Asset (NPA) till the period of June 23. The court refused to intervene saying that such a matter of policy is best left to policymakers and so it is unfit for court intervention. Previously, in June, the SC rejected a plea that sought a relief on fresh loan moratorium because of the Covid-19 pandemic. The court declared that such decisions dealing with financial ramifications need to be left to the policymakers i.e. the Reserve Bank of India and the Government of India.
A bench comprising Justice Mr. DY Chandrahud and Justice Mr. Mukeshkumar Rasikbhai Shah at once refused to hear the petition filed by advocate, Mr. Vishal Tiwari. Advocate Tiwari was seeking direction for modification of the court’s verdict of March 23, 2021.
Update Date: 12-07-2021
The present crisis can be solved by moratorium on MSME Loans till March’22- Nirmala Sitharaman asked by Telangana minister KT Rama Rao
This financial support would definitely provide a big relief to the MSMEs and help them in a big way to get back to normalcy-this was the content of a letter written by IT and Industries Minister KT Rao to respected Finance Minister Ms. Nirmala Sitharaman. The Information Technology and the minister of industries KT Rama Rao recently had sent a letter to the Finance Ministry on 7th July 2021, Wednesday.
He has requested Nirmala Sitharaman, the Union Finance Minister for imposing a new moratorium for the loans which are sanctioned to the MSMEs up to 31st March 2022, without any extra interest, during this extended period of moratorium. This request has been recently placed by Rama Rao as requested by various business and startup owners in the wake of Covid. The pandemic-induced decline in the economy has led to declining revenues and loss of business. If the MSMEs get a moratorium on the loan availed by them it would give them a big relief in this situation. Without this, it would be very difficult for the MSMEs to return to normalcy.
The surrounding districts of Hyderabad and its nearby areas have seen the rise of manufacturing hubs in the previous 5 decades but due to the pandemic restrictions, the MSMEs have been adversely affected. This was said by KT Rao. They are going through a lot to survive at the present moment. He further added although the state government didn’t place any kind of restrictions on the industrial activities in the state due to imposition of lockdown in the surrounding states they have been affected. So, he has requested the finance minister to take up some supportive measures for boosting MSMEs.
Updated Date: 09-07-2021
Kerala Government’s Plea to Centre For Putting a Moratorium Period
Recently the Kerala Government has asked the Central Government for placing a moratorium on the repayment of the loan till the 31st of December. This would be providing some relief to the people who are working in the unorganized sector, agriculture, MSMEs and other sectors which are affected by this pandemic.
Kerala Government has asked for a moratorium that needs to be included without any penal interest, accrual of interest due for the said period. In a letter written to Nirmala Sitharaman, Union Finance Minister by K N Balagopal who is the finance minister of Kerala has said that the second wave of Covid-19 has affected the economy adversely. This has affected the well-being of such sectors. There is a burden on various individuals particularly in various MSMEs at this time and the moratorium would provide some relief to such people thereby boosting the economy of the sector. The state government is doing its best to ameliorate various hardships that are being faced by the people.
Nirmala Sitaraman has stated that the economy is under stress from 2018 due to natural disasters. Further due to the imposition of multiple lockdowns from 2020 now the economy is in great distress as added by the Finance Minister of Kerala.
Date Updated: 27-06-2021
What is a Loan Moratorium?
Loan moratorium is introduced by central monetary authorities such as the Federal Reserve of USA for RBI in India as instruments of monetary policy to protect those who are facing financial hardships on a temporary basis due to disruptions in the larger macro-economic situation of the country Loan moratorium is a temporary suspension of loan repayment obligations, till there are some encouraging signs in the progression graph of the world’s economy.
Loan moratorium is formulated by the Reserve Bank of India as a temporary relief measure to come to terms with the coronavirus pandemic. The RBI has found it prudent to introduce a loan moratorium period of 3 months on the following loan variants
- Term loan
- Credit card repayments
All lending institutions both public and private sectors are given guidelines to defer monthly or periodical EMIs for all the customers who have enrolled for the benefits of the moratorium scheme.
How does a loan moratorium work?
Loan moratorium is a first level of defense applied by central banking authorities to deal with a financial crisis which has the capability to disrupt the normal routine of individuals, small businesses and have a scarring effect on the nation’s economic situation. In the past, there have been many natural disasters such as floods, mighty earthquakes, long-lasting droughts and pandemic outbreaks.
Cost of Loan restructuring
Outstanding of loan
Rs 10 Lakh
After a moratorium of 1 year
Remaining payment tenure
Renewed outstanding after 1 year
Rs 10.85 lakh
8 per cent
EMI after moratorium of 1 year
Examples of Loan Moratorium
The covid-19 pandemic had a profound effort effect on the economic activities of the people. Nearly 180 countries are affected and depending on the pandemic severity, the national governments had to implement a slew of lockdown measures in their cities.
1. Initial Stages
Global markets acted unpredictably in the beginning of the pandemic due to lack of information regarding the extent and severity of the initial cases.
- On March 23rd, 2020, the Government of India after conducting a thorough analysis of the ground situation and institutional responses of foreign countries decided to impose an all-encompassing lockdown across its boundaries.
- The entire country entered into war mode to effectively combat the virus. Never before in the history of independent India, have we seen such mass disruption in the financial activities of the people.
The unpredictability and instability among financial activities have led to an economic depression. Many people had their salaries reduced and some people lost their jobs. The entire working ecosystem faced a serious reckoning due to the covid-19 pandemic and there were a lot of unreported and unaccounted job losses.
RBIs decision to introduce Loan Moratorium
The RBI responded to the SOS call of individuals who have availed term loans, house loans and who have outstanding credit card bills.
RBI immediately went into crisis mode and took stock of the situation to alleviate the financial suffering of the normal people. As such, on March 27th 2020 the RBI issued generally circular containing mandatory guidelines to all lending institutions, housing finance companies and banks and indicated to them, that borrowers should be given at 3 month loan moratorium in the category of term loans.
The moratorium was decided to be in force during the time periods of March 1st and May 31st, 2020. The RBI indicated that all deferred financial installments under the loan moratorium would comprise of the below-given payments during the indicated period
- Principal amount and components of interest
- Equated monthly installment
- Bullet repayment
- Outstanding dues on credit cards
What is a moratorium period?
- The time period during a specific term loan in which the borrower is not necessarily mandated to carry out his repayment obligations is known as a moratorium period.
- The payment of EMI resumes immediately after the said waiting period is over.
- When the loan disbursement takes place and the repayment schedule kicks in, most of the financial institutions mandate that borrower should pay EMI immediately till the repayment is complete.
What are the various advantages of servicing loans during the loan moratorium period?
For those customers who are cash surplus and do not have liquidity issues, it is financially prudent advise for them to pay their loan settlement during the moratorium period. Loan repayment during the RBI moratorium period and shows that interest is not applied to the total solute total principal at the end of the moratorium period full stop repayment period repayment during RBL loan market for the borrower can be less amount of interest and avoid any charging of extra fees.
How borrowers can improve their financial position by availing the benefits of RBI second loan moratorium during covid-19?
Higher costs are accrued on the financial history of the borrower through interest charges and penalties in case of repayment defaults. This series of steps has a negative impact on the credit history of the borrower and a shadow is cast on the future creditworthiness of the borrower and which may result in the non-sanction of loans in the business and housing sector. To prevent the tarnishing of the credit history of the borrower, the RBI has introduced the loan moratorium scheme.
- Individual borrowers are facing a host of difficulties such as income-expenditure mismatches and monthly defaults.
- The RBI has entered the picture and to stem the trickling of future financial creditworthiness, the RBI has asked all financial lenders to initiate a second moratorium.
- The good news is that those who did not avail of the first loan moratorium can also offer this second one. Those who have availed of the first moratorium period can also extend the repayment of the loan for another period of 3 months for the second moratorium.
With the intent to protect the integrity of the financial systems and its linkages, the RBI announced the introduction of the second loan moratorium during an unscheduled announcement so that nobody would take advantage of internal trading.
Effect on Small Businesses and MSMEs
Small businesses, individuals and MSMEs whose total exposure in a term loan or a housing loan goes up to a maximum of Rs 25 crores can avail the second loan moratorium.
it is also indicated that the specific loan should not have undergone any banking restructuring framework. Only those loans that come under the classification of standard loans without the incidence of any NPA classification are eligible for a moratorium as of March 31st, 2021. Let’s glance through how this second loan moratorium will work to the advantage of the various borrowers and small businesses
Borrowers who did not opt-in for the earlier moratorium
Borrowers were given an extended loan moratorium period of two years to overcome the extraordinary negative circumstances created by the national lockdown in light of the covid-19 pandemic. But this loan scheme did not evince interest from many individual borrowers. Now the same persons are facing financial difficulties in loan repayments.
- Repayment defaults not only increase the monetary value of interest and leads to the charging of single lump sum penalties, but they also have a long-term impact on the credit history.
- The creditworthiness of an individual is paramount to ensure that they get proper credit in their future needs. Loan moratorium schemes are amazing instruments that ensure borrowers do not spoil their credit history.
- Skipping the payments during the loan moratorium scheme now does not attract any negative report or any hard pull on the credit history of the borrower.
RBIs loan moratorium is not only concerned with the short-term advantages of maintaining financial solvency to the borrower but it deals with the long-term consequences of maintaining a good credit ecosystem in the minds of the borrower.
Restructured loans and Loan Moratorium
Entrepreneurs take term loans to make the economic wheels of the country move. Disastrous situations like the pandemic or the covid-19 should not be allowed to create disruption in the financial discipline of the entrepreneurs.
To prevent the small organizations from getting discouraged from fulfilling their debt obligations, the RBI loan moratorium scheme provides financial help in times of need so that their belief in the financial system is strengthened and they continued to make disciplined financial payments after the loan moratorium scheme ends.
What are the options available to those who have already availed the loan moratorium?
- The first loan moratorium introduced by the RBI was for the duration of 3 months. The central bank later extended the same scheme by another three months up to August 31st, 2020.
- The RBI has also indicated that as part of the restructuring framework, interested term loan borrowers can seek to extend the loan moratorium to a period of 2 years after detailed consultations with the financial lender.
- The good news is that even if any individual or business organization availed that advantage of the first moratorium in 2020, they are still categorized as eligible to reap the benefits of the new loan moratorium scheme in 2021 and extend their repayment tenure by another two years.
- Lending institutions are now authorized to use this loan moratorium window to permit certain modifications that they see fit in enhancing the moratorium period.
What are the prime benefits of RBI Loan moratorium?
- Reduction in financial stress for those who are facing shortfalls in income flows due to the extenuated circumstances of the covid-19 crisis.
- Availing the loan moratorium safeguards the financial reputation of your credit score and does not have a long term negative effect.
- Banks are precluded from charging any financial penalty for availing moratorium
Few drawbacks of availing RBI loan moratorium
- Payment of EMI has to be done at a later period of time. The total quantum of the interest is assimilated into the principal amount thus making it a huge financial burden at the end of the moratorium period for paying a higher amount of EMI.
- Tax implications certainly exist in availing for RBI loan moratorium. The tax deductions that are calculated on the latest serviced interest will definitely be altered by availing the moratorium. –
- Read More – Moratorium Calculator
- By availing the RBI loan moratorium the borrower will inadvertently extend their term loan schedule by a minimum of six months and to a maximum of 10 months.
Eligibility for the latest RBI loan moratorium
- Those businesses and housing loan borrows who did not undergo restructuring are eligible to get a 2 year extended loan moratorium.
- This is applicable to small businesses, SMEs and individuals who have availed of term loan for business or personal nature.
- The loan moratorium facility is applicable to all those borrowers you have a maximum exposure limit of Rs 25 crores.
- Those were seeking fresh loans are eligible for up to a maximum of three years applied at a repo rate as on March 31st 2022.
Credit injection after Loan moratorium
It was also announced by RBI that a complimentary financial mechanism of injecting Rs 50,000 crores into the credit system is being carried out at the earliest. This cash injection offers a diverse range of benefits to manufacturers of:
- Complex medical devices
- Importers of vaccines
- Pathology labs
- Primary dispensaries and super-specialty hospitals
The RBI has also encouraged the medical establishments to procure ventilators and also facilitate the manufacture of ventilators in India, manufacture of related drugs and establishment of logistics for the smooth flow of medical infrastructure.
RBI Loan Moratorium News FAQs:
1. Which category of lenders is permitted to offer the EMI loan moratorium of RBI?
2. Should I make a formal application for loan moratorium or will they be automatically deferred by the financial system?
3. Is loan waiver equivalent to waiver of EMIs?
4. Till which time can borrowers opt for the RBI loan moratorium offer?
5. Are both the term loan and the interest amount included in the RBL loan moratorium?
6. How can borrowers avail for the RBI loan moratorium?
7. What if the borrowers are facing financial difficulties even after the three month RBI loan moratorium?
8. Is interest on the term loan and on credit card outstanding balance applied during the RBI loan moratorium period?
9. What is the last day before I can apply for a loan moratorium?
10. Should individual borrowers apply for a RBI loan moratorium?
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