Opting for EMI moratorium? Be ready to pay more
It is not just three equated monthly instalments (EMIs) that will get added to your home loan repayments if you choose to go in for a moratorium. Asking borrowers to defer EMIs only if they have no cash, banks have said that interest for the three months would get compounded if not repaid at the end of the period.
MUMBAI: It is not just three equated monthly instalments (EMIs) that will get added to your home loan repayments if you choose to go in for a moratorium. Asking borrowers to defer EMIs only if they have no cash, banks have said that interest for the three months would get compounded if not repaid at the end of the period. This could lead to the borrowers paying for several months more depending on the length of their loans and whether they pre-pay.
Appreciate @RBI @DasShaktikanta’s reassuring words on financial stability. The 3 month moratorium on payments of term loan instalments (EMI) & interest on working capital give much-desired relief. Slashed interest rate needs quick transmission. #IndiaFightsCoronavirus— Nirmala Sitharaman (@nsitharaman) March 27, 2020
In an illustration of how the moratorium would work, State Bank of India said that for a loan of Rs 30 lakh with a remaining maturity of 15 years, the net additional interest would be approximately Rs 2.34 lakh—equal to 8 EMIs. For a loan of Rs 6 lakh with a remaining maturity of 54 months, the additional interest payable would be around Rs 19,000, equal to an additional 1.5 EMIs. This is assuming there is no pre-payment or change in the interest rate. SBI also said that the bank would, as default, debit the customer’s account unless it is asked not to.
Governor’s address to media https://t.co/vsfV13L0UK— ReserveBankOfIndia (@RBI) March 27, 2020
“The moratorium facility is available for all borrowers. A call should be taken based on how desperately you need this,” said C S Setty, MD, SBI. If the customer does not have balance in his account and the standing instructions for debit fail, the bank will treat it as an exercise of the moratorium option. Borrowers have been advised to give instructions in advance to stall the debit, even if they have no money because the bank where they have their savings account might charge them for failure of standing instruction.
ICICI Bank has adopted a dual policy where for some category of loans it will make the acceptance of moratorium as default; for other categories it will continue to debit the customer’s account as a default option. The bank said that the differentiation was based on the amount of stress in the sector. For instance, for loans like home, auto and personal, it expects that most customers would continue to repay and the default option will continue to debit the account. In other categories like Kisan Credit Card, self-help groups, farm equipment loans, small business loans, and trade advances to auto dealers among other categories, it will grant an automatic moratorium.
Last Friday, RBI allowed lenders to give borrowers a break in their EMIs to tide over the Covid-19 crisis. The condition was that the instalments would be recovered at the end of the moratorium. Kotak Mahindra Bank said that it would by default present the post-dated cheques and activate the electronic clearing system (ECS) or national automated clearing house (NACH). “Customers that are desirous of availing the relief under the RBI circular should send a communication to the bank within seven days (or an extended date as may be permitted by the bank) from their first due date,” Kotak Mahindra Bank said.
HDFC Bank said it would continue the collection of EMIs unless otherwise instructed by the customer. “The start point of the benefit of the moratorium is when the customer approaches the bank or there is non-payment of dues now or in the normal course of business,” the bank said. It added that while no changes will be made by the bank to the customer’s repayment instructions, the bank will understand that customer has opted for a moratorium if he skips paying his EMI during this period.