RBI Monetary Policy-3 Months Moratorium

RBI Monetary Policy: 3 Month Moratorium

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The global pandemic Covid -19 has reached its peak around the world and has brought everything to a halt. The prime minister announced a 21- day lockdown in India and ever since then our lives have seen a drastic change. All of us are quarantined in our homes, each time we have to move out of our house we have to gear up.  So Wear our masks and our gloves every time we go out to buy essentials. People with symptoms are being taken to a quarantine facility; they are not allowed to meet friends and family. Hence, All of this has become one big emotional turmoil for all of us.

Amidst all of this, the only relief for the general public is that the RBI has officially announced that all NBFCs and banks can allow 3 months moratorium period on repayments of term loan which are outstanding as on March 1, 2020.  This has come as a relief to people who do not have a stable income right now. A lot of things will come into effect with this decision, so we decided to break it down for you as always! So, let’s discuss how this monetary policy will work, who will benefit from it and how.

What is a moratorium period?

3 month maratorium

A 3 month moratorium period is basically an EMI holiday which basically means that your repayment cycle starts after a few months and you don’t have to pay anything till then. Banks generally offer a moratorium period of up to 1 year in case of home and education loans. A simple interest is charged during this period which is then added to the principal amount but in this case, RBI has made it clear that any interest or principal amount can be repaid after 3 months.    

Tenure of the Moratorium

3 month maratorium

The reserve bank of India has notified the banks and NBFCs to allow 3 months EMI holiday with effect from 1st March 2020 till 31st May 2020. Since the lockdown took place at a later stage, technically the moratorium period is valid for April and May only. It is also important to note that in case of a moratorium, simple interest is levied on the principal amount and must be paid with the same.

Which type of borrowers can avail of this relaxation?

3 month moratorium

As notified by the RBI, all commercial, co-operative banks, NBFCs, and other financial institutions have been given permission to allow a 3 month EMI holiday for their customers. The RBI has officially stated that the moratorium period is applicable on all term loans which are outstanding as on March 1st, 2020. Term loans include those loans which have fixed repayment tenure like, personal loans, educational loans, home loans, automobile loans, agricultural loans, and consumer durable loans. According to the RBI, all credit card dues and loans against credit card limit obtained before or on 1st march can also be repaid after the moratorium period is over, however, any loan or credit obtained after 1st march is not covered under this policy.

Impact on your credit score

3 month moratorium

Getting a moratorium period sounds like a relief, but will it have an impact on your credit score? The answer to that is a ‘No’. You don’t have to worry about your credit score at all because the RBI has clearly mentioned that the n
on-payment of any loan or credit during this 3 month moratorium will not be counted as a default and will have no impact on the credit history of the borrower. So, go ahead check your credit score online you are sorted. To check, click here


 What else does the RBI monetary policy hold?

  • The banks get loans from the central bank at a lower interest rate as the Repo rate has been reduced to 4.4%.
  • Reverse repo rate is the interest rate at which RBI borrows from the banks, this rate has also been reduced to 4%
  • All banks and financial institutions have been permitted to defer the interest rates for these 3 months on working capital.
  • Cash reserve ratio has also been reduced to 3%.

It is important to understand that the 3 month moratorium period is just a temporary relaxation, all the terms and conditions of term loans will remain the same and the policy has just delayed the repayment for 3 months. A simple interest will still be levied on your loans and you will have to pay it additionally.

We strongly recommend that you use this time to plan your finances so that once this holiday ends you are back on track. An additional burden can often lead to missed payments which then eventually becomes a bigger burden. So, use this time to save more money and be prepared to pay the EMIs when this holiday ends and until then you can relax and spend time with your loved ones.

Stay home, stay safe!

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