Banks which give borrowers a three-month moratorium on repayment of loans will continue to charge interest on the outstanding portion of the loans during this window period, the Reserve Bank of India clarified on Friday evening.
The 3-month moratorium on repayment of loans - including home loans, car loans, personal loans and credit card dues - was announced by RBI Governor Shaktikanta Das earlier on Friday after he declaring a 75 basis points (0.75 percentage point) cut in the repo rate, or the rate at which the central bank lends to banks. It was the steepest interest rate cut in 11 years, mostly targeted at reviving growth and mitigating the impact of czovid-19 pandemic.
In a communication later in the evening, the RBI told banks that they could shift the repayment schedule for loans and the residual tenor across the board by three months after the moratorium period.
“Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period,” the RBI said on the moratorium announced as part of a package to mitigate the burden of debt servicing.
In case of the credit or overdraft for working capital of firms, the accumulated accrued interest shall have to be recovered immediately after the completion of the three-month period.
{{/usCountry}}In case of the credit or overdraft for working capital of firms, the accumulated accrued interest shall have to be recovered immediately after the completion of the three-month period.
{{/usCountry}}The three-month break in repayment of equated monthly instalments could benefit tens of thousands of individuals, some of whose livelihoods or businesses have been affected by the pandemic.
But the RBI circular makes it clear that it comes at a cost. Borrowers who opt for the EMI holiday for the three months will have to pay the interest for this period too. “Therefore, after the moratorium is over, you will have to pay the outstanding amount which will also include the interest levied for three months as well as the interest on the outstanding principal. Therefore you will be paying higher interest.” said Aditya Mishra, founder and CEO, Switchme.in, according to a Livemint report.