RBI loan moratorium: 'Which bank will refuse?'

Is the three-month loan moratorium good news, even if temporary, for borrowers who will be financially stressed in the times to come?
Prasanna D Zore/Rediff.com finds out.

How will the RBI announcement on loan moratorium work for those with home loans, auto loans, personal loans, consumer durables loan?

Rediff.com spoke with experts and bankers (who spoke on the condition that their identities not be revealed) on how the RBI's announcement on loan moratorium will work.

Amid a flurry of announcements made by the Reserve Bank of India on Friday to reduce the financial stress on the economy and Indians due to the coronavirus pandemic, the one that could put at ease lakhs of borrowers was the announcement that allowed lenders of term loans to offer a three-month moratorium to their borrowers.

RBI Governor Shaktikanta Das said, 'All commercial banks (public as well as private), co-operative banks, financial institutions, and non-banking finance companies or NBFCs (housing finance companies and micro-finance institutions) are being permitted to allow a moratorium of three months on payment of installments in respect of all term loans outstanding as on March 1, 2020.'

Explaining the rationale behind his move, Das said, 'The moratorium/deferment is being provided specifically to enable the borrowers to tide over the economic fallout from COVID-19. Hence, the same will not be treated as change in terms and conditions of loan agreements due to financial difficulty of the borrowers and, consequently, will not result in asset classification downgrade.'

Does this mean that lending institutions will automatically defer EMI payments of borrowers of term loans like home loans, auto loans, consumer durable loans, etc?

The central bank chief has thrown the ball in the courts of lenders. 'The lending institutions may accordingly put in place a Board approved policy in this regard,' Das said.

The most pertinent question for borrowers, though, is how will their lenders react to the RBI governor's 'are being permitted to allow a moratorium' clause. While the answer could become evident by Monday, the bankers on their part are equally confused over the same clause and much more.

The confused banks, on their part, have sought further clarification from the RBI.

"Will this three-month moratorium apply for all term loans like home loans, auto loans and vehicle loans? We don't know," says a banker from the private sector.

"Or will we be allowed to decide upon who is eligible and who is not?"

"We have sought clarification from the banking regulator over these and many other issues?" he adds.

"Let's hope we will get more clarity on the queries that we have," says a home loan officer from another private sector bank.

"Will those who have purchased consumer durables, say a mobile phone, on their credit cards for a period of 10 months be eligible for this moratorium, we don't know. What about loans against property?" he asks, emphasising the confusion that bankers face right now.

Independent financial advisor Harsh Roongta believes that given the severity of the financial stress no banker will be in a position to deny the moratorium to their borrowers.

According to Roongta, a term loan can be defined as any loan that is paid over a period of time in equated monthly installments (EMI).

"This phrase (are being permitted to allow) is basically an enablement for the banks. So banks and their borrowers will have to deal with each other on an individual basis," says Roongta.

Clarifying how the moratorium would work and what components will it include, Mahesh Padmanabhan of RelaxWithTax.com says, "the three-month EMI moratorium would include both the interest and principal component."

"What I understand is, one (the borrower) has to write to the bank that they will be unable to service the loan and only then the bank may consider," Padmnabhan says about the way the moratorium offer would work.

While according to Roongta, this moratorium would apply for home, auto, consumer and credit card loan, Padmanabhan believes some personal loans may not qualify as 'term loans' and may not be eligible for the three-month moratorium.

"Credit card loans may not be covered because they are not term loans. Credit card loan is like an overdraft facility. These are not collateralised loans, but personal loans are also sometimes not collateralised," says Padmnabhan.

"Every personal loan will have some kind of methodology. In some cases it is over a period of time (term loan). In some cases, it is like an overdraft facility (short-term or overnight lending). So, it is specifically not a term loan, so I presume that it does not cover such personal loans."

Roongta agrees with the bankers cited above over the confusion and questions that the bankers have regarding who will be eligible for the moratorium offer. Nevertheless, he says, "By Monday morning maximum banks will tell their customers, 'apply on our Web site and get automatic deferment'."

"Bank may not automatically do it. But I would like to meet the bank/banker that has the guts to say they won't do that."

Illustration: Uttam Ghosh/Rediff.com