As India, along with the rest of the world struggles to get back on its feet, the RBI (Reserve Bank of India) is looking for ways to make the life of the common man less stressful.
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The first EMI moratorium was announced March 27th 2020 and was to cover loan repayments between March 1st and May 31st. As the COVID-19 pandemic still rages on, it was clear that there needed to be an extension of the moratorium. This is why today (22nd May 2020), the RBI Governor Shaktikanta Das extended the moratorium on loan repayments saying – “In view of the extension of the lockdown and continuing disruptions on account of COVID-19, it has been decided to permit lending institutions to extend the moratorium on term loan instalments by another three months, ie, from June 1 to August 31st 2020”.
How does the extended EMI moratorium help?
About 122 million people lost their jobs because of the COVID-19 outbreak. To add to this, self-employed individuals are struggling to make ends meet because of the loss of income during the pandemic. In case you’re wondering, about 51% of India’s workforce is self-employed! This means that a huge chunk of India’s working population is now finding it difficult to manage their expenses and pay off loans.
The added 3-month extension will provide some much-needed relief to these individuals. They will now be able to their loans such as car loans, home loans etc. If they miss an EMI payment, they run the risk of negatively impacting their credit score.
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Now that loans are deferred for another 3 months, and money won’t be deducted from their bank accounts, most people will have a little money to tide them over until things start looking up.
Important points to keep in mind about the EMI moratorium
Although the RBI EMI moratorium is good news to many, here’s what you should be aware of-
- The EMI moratorium is not a mandate, it is an enabling provision. Banks have the right to decide if they want to follow this or not. Individual banks will also be allowed to decide if this moratorium is for all borrowers or not.
- If you decided to avail the moratorium, EMIs will be extended with interest applicable on your outstanding principal amount during the no payment time. This will increase your overall interest cost. If you have the money to manage your loan EMIs, then it’s best to stick to the original repayment schedule especially if you have a sizeable outstanding loan amount like for a home loan or loan against property.
- The moratorium defers payments for principal and/or interest components; bullet repayments; Equated Monthly instalments (EMI), and credit card dues.
The repo rate cut
Apart from announcing the moratorium, the RBI also announced a huge cut to the repo rate by 40 basis points to 4%. The reverse repo rate has also been cut by 40 basis points to 3.35%.
The repo rate is the interest rate that RBI charges for funds given to banks. This huge cut in repo rates will encourage banks to reduce their lending rates as well. Lowered lending rates will hopefully encourage people to think about investing again. It is also said that EMIs on home, auto, personal and term loan rates will come down in the near future. Read more about the repo rate from here.
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Amazing information you have shared in this article. This article helps me a lot to know the EMI moratorium. Thank you for the information.