The COVID 19 pandemic, along with claiming countless lives has also rendered the world economy absolutely immobile. While its cold hand tightens its grip on the Indian economy, the Reserve Bank of India nudged the banking sector to allow a three-month moratorium period on loan payments, to all borrowers who wish to avail it. This move has been well received and is being viewed as a much-needed relief for everyone who is struggling to make payments, especially at a time, when income, employment and financial stability has been rattled with no definite safety net in sight. All EMI payments that are due between 1st March 2020 to 31st May 2020 can be deferred, until further notice.

However, there's much to understand about this move undertaken by the banks, NBCFs and the RBI. In an attempt to dissect it further and understand the implications on the common man, let's look at the finer prints.

WHAT DOES A LOAN MORATORIUM MEAN?

It's essential to understand that a moratorium does not mean a waiver, in any way or form. By accepting a moratorium, the borrower is in no way, exempt from their duty of repaying the loan. A moratorium means a brief deferment from EMI payments, for a certain period. In other words, borrowers should consider this as a grace period, before beginning the process of making payments. If you defer a payment within this period, you will not be blacklisted by the bank, as is the norm, under regular circumstances.

It's also important to note that the interest accrued during the period of the moratorium won't be waived off, either. The interest will be added on to your EMI payments later, and in some cases, even a penalty might be charged (however, this is highly subjective from bank to bank), despite being advised against charging a late fee, by the Finance Minister.

Opting for a moratorium will not affect a borrower's creditworthiness.

WHO ARE ELIGIBLE FOR A MORATORIUM?

Under the RBI's ruling, all term loans have been included in the list of loans that are eligible for an EMI moratorium, which means any borrower who has availed a home loan, vehicle loan, personal loan or any other credit that qualify as term loans, are eligible for this facility.

TYPES OF MORATORIUMS

While it's a no brainer that each bank and NBFC will subject the moratorium to its own rules and policies, there are three broad categories, that will be modulated according to what fits their targets, the best.

Template 1 - The borrower has the option of paying the interest that has accrued over March, April and May at one go in June, in the form of a lumpsum payment. This is viable for those whose cash crunch issues have been resolved and would prefer not extending their loan tenure.

Template 2 - The interest accrued over the moratorium period is added to the whole of the outstanding amount, and can be paid off, in the form of increased EMI instalments through the remaining months. This is ideal for those who are slowly getting back on their feet and have a steady income to support themselves through the aftermath of the Pandemic.

Template 3 - Differing from the previous options, in this plan the EMI amount remains unchanged, but the loan tenure is extended, to accommodate the accrued interest. This is ideal for those who are still grappling with a liquidity crunch and will take some time to rehabilitate their financial situation.

IS THE MORATORIUM THE RIGHT STEP FOR YOU?

Amidst all of the chaos that is running rampant in the economy and the nation's social order, confusion is likely to prevail. Be it a personal dilemma or a financial crisis, you are your best advisor. In the case of opting for a loan moratorium, one must pause to consider if it is, in fact - the best option for them. Weigh the risks, the costs and the benefits a moratorium could mean for you, before signing up for it. Here are two essential factors borrowers ought to consider before reaching out to their banking counterparts.

• If you are in a position to pay your loan instalments, don't opt for the moratorium as it needlessly piles up monetary pressure on you later - when you might need funds. Several banks, like the State Bank of India, has cautioned many customers against opting for the moratorium, unless necessary. This is how a basic loan would look, after a moratorium - If you've undertaken a thirty lakh rupee home loan with a residual maturity of 15 years, deferring three EMI payments could mean an accrued interest of Rs. 2.34 Lakhs, almost adding up to eight additional payment instalments.
• You must consider opting for a moratorium, only if you're faced with a liquidity crunch that is pushing you to choose between providing for your family, and servicing your outstanding loan. The moratorium was offered to provide relief to families that hardpressed for funds in the catastrophe stricken economy.

HOW TO APPLY FOR A MORATORIUM

The process of applying for a moratorium is easy enough. Its also important to note that some banks have an automatic opt-in facility where you're already signed up for the benefit, without you're saying so - be sure to check with your bank representative. Log on to your bank website and peruse their notice boards to check their rules and regulations for the moratorium period. Most banks have made the opt-in process very simple - a single phone call to the given number or your banking representative will help through the formalities.

WHAT MORATORIUM PLANS ARE BANKS & NBFCs OFFERING YOU?

We've walked through what a moratorium is, and what are the implications it's like to have on your finances, but all of it was in theory. Lets now look at three moratorium plans, that are being offered by the three most popular and most sought after banking institutions in the country, to see if there's a pattern to give the phenomenon a real face.

HDFC HOME LOANS

• Offers a moratorium planing abiding by the RBI norms
• interest will continue to accrue on the principal outstanding amount for the period of the moratorium at the contracted rate of the loan.
• The loan tenure will get extended by the corresponding period for which the moratorium has been availed.
• If any EMI was deducted while you opted for the moratorium, the amount will be credited back to the account.
• The moratorium is also offered for Credit Card payments

STATE BANK OF INDIA

• Offers a moratorium planing abiding by the RBI norms
• For payments that are carried out through the National Automated Clearing House (NACH), an application must be submitted via email, to the designated email address.
• For payments that are deducted through Standing Instructions, an email opt-in for the moratorium is enough
• interest will continue to accrue on the principal outstanding amount for the period of the moratorium at the contracted rate of the loan.

BAJAJ FINSERV

• Offers moratorium to its customers with consistent loan repayment track record.
• The moratorium can be availed online, or via email.
• The request to be granted moratorium needs to be placed 7 days before the EMI gets debited from your bank account.
• interest will continue to accrue on the principal outstanding amount for the period of the moratorium at the contracted rate of the loan.
• Interest will be applicable for the no-cost EMI consumer durable loans too for this moratorium period
• If any late payment charges get levied, the same shall be waived off/reversed.