By Reetika Wadhwa and Nishtha Das
The current situation arising out of the COVID-19 outbreak and the following lockdown has created an acute disruption in the normal lives. The economy is also witnessing a slow fall-out owing to the said out-break. During this stressful period, the Reserve Bank of India (hereinafter referred to as ‘RBI’) has rolled out the provision of ‘moratorium’ in order to provide some relief to the borrowers. The RBI vide its notification dated March 27, 2020 has directed all the existing banks to grant a moratorium of three months on payment of all installments falling due between March 1, 2020 and May 31, 2020.
What is moratorium period?
A moratorium period can be understood as a temporary suspension of any financial activity until future events restore normalcy and permit cessation of the suspension. A moratorium may be imposed by government or by a business or in the said case, by the Central Bank of the nation i.e. RBI. Moratoriums are often imposed as a resolving response to impermanent financial hardships. In simpler terms ‘moratorium’ can also be considered as a ‘repayment holiday’ where the borrower is given an option to avoid repayment during the moratorium period. Hence the loan terms are restructured with express and agreed mutual consent between the lender and the borrower.
Scope and implementation of the moratorium
- The moratorium period is granted for a period of three month for payment of all installments falling due between March 1, 2020 and May 31, 2020.
- The moratorium period is granted for all term loans including principal/ interest components, EMIs and credit card dues.
- The circular is applicable for all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and Non-Banking Financial Companies (including housing finance companies).
- The moratorium benefit can be availed by the borrower if there is any disruption in cash flow or loss of income. It has to be understood that the moratorium period is only an allowed delay but it does not result in waiving off of the interest.
It is reiterated that the interest shall be accrued for all the three months for which the payment is delayed. In fact, the amount of interest payable after availing three months of moratorium will be increased due to the accrual added over the months.
Here is a quick illustration for more clarity on the above:
as on April 01, 2020
|Assumed Interest rate||Moratorium Duration||Interest Accrued during the moratorium||Total Amount due as of June 01, 2020|
|42% per annum||2 months||Rs. 3,571.16||Rs. 53,571.16|
Additionally, the businesses may further request the bank to re-assess their working capital requirements on account of disruption of their cash flows or elongation of working capital cycle. Working capital refers to the capital used by a business for its regular trading operations. It is a result obtained from deducting current liabilities from current assets. The decision is subject to bank’s discretion and may be considered on case-to-case basis based on the genuineness of the request.
Comparative Chart of Banks alongwith their respective scope of relief (moratorium)
Below is the list of banks along with their scope of moratorium preference
|S. No.||Name of the Bank||Scope of relief/ moratorium|
|1||State Bank of India||Relief only if asked by borrower|
|2||IDBI Bank||Automatic relief|
|3||Canara Bank||Relief only if asked by borrower|
|4||IDFC first||Automatic relief for agriculture and rural loans. For rest, relief only if asked by borrower|
|5||ICICI Bank||Automatic relief for 2 wheeler loans, business loans, farm loans and jewel loans. For rest, relief only if asked by borrower|
|6||Central Bank of India||Automatic relief|
|7||UCO Bank||Automatic relief|
|8||Bank of Baroda||Conditional automatic relief|
|9||Federal Bank||Automatic relief for business loans up to INR 5 crores, agriculture, micro lending and gold. For rest, relief only if asked by borrower|
|10||HDFC Bank||Relief only if asked by borrower|
|11||Kotak Mahindra Bank||Relief only if asked by borrower|
|12||Bajaj Finserv||Relief only if asked by borrower|
|13||PNB Housing||Relief only if asked by borrower|
|14||Indiabulls Housing||Relief only if asked by borrower|
|15||Repco home finance||Automatic relief|
|16||Punjab and Sind Bank||Automatic relief|
|17||HSBC Bank||Relief only if asked by borrower|
|18||Deutsche Bank||Automatic relief|
|19||Standard Chartered Bank||Automatic relief|
|20||Axis Bank||Automatic relief for gold loans, farm, microfinance, commodity loans, tractor, commercial vehicles, construction equipment, nosiness loans and unsecured overdraft and term loans. For others on demand|
|21||Bank of India||Automatic relief|