No need to pay EMIs of home, auto, farm loans till May 31

An average Indian who has taken a home or an auto loan and a farmer under the stress of a crop loan from banks and NBFCs, can now have a sigh of relief, as the Reserve Bank of India (RBI) has directed the lenders to put a halt on the instalment payments till the end of May.

This comes as a major relief to the retail loan borrowers including farmers whose daily work and farm activities have stopped due to the 21-day lockdown leaving them with lower or no income.

Reserve Bank Governor Shaktikanta Das on Friday announced a three month moratorium on EMIs of all term loans due during March 1 to May 31 and said that the repayment schedule for all those loans would be shifted by three months after the moratorium.

"In respect of all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) are permitted to grant a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020," said the RBI's circular to all banks and non-banking financial companies.

"The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratoriumperiod. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period," it said.

Further, in respect of working capital facilities sanctioned in the form of cash credit or overdraft, lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1 upto May 31. The accumulated accrued interest shall be recovered immediately after the completion of this period.

Apart from retail loans, corporates and MSMEs will also benefit from deferment on EMI repayments on term loans.

The apex bank also announced deferment of interest payment on working capital loans by three months.

The twin move is expected to reduce pressure on both creditors and borrowers as the former gets relief on qualifying loans as NPAs and thereby, increases provisioning for a period of three months.

For borrowers facing disruptions on account of Covid-19 pandemic, the RBI move provides more time to settle their dues.

The circular to the banks said that the rescheduling of payments, including interest, will not qualify as a default for the purposes of supervisory reporting and reporting to Credit Information Companies (CICs) by the lending institutions.

"CICs shall ensure that the actions taken by lending institutions pursuant to the above announcements do not adversely impact the credit history of the beneficiaries."

The circular directed the banks and NBFCs that that they would have to frame Board-approved polices for providing the reliefs to all eligible borrowers, including the objective criteria for considering reliefs.

"Wherever the exposure of a lending institution to a borrower is Rs 5 crore or above as on March 1, 2020, the bank shall develop an MIS on the reliefs provided to its borrowers which shall inter alia include borrower-wise and credit-facility wise information regarding the nature and amount of relief granted."

It said that the instructions come into force with immediate effect.