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Should you choose to pay your EMIs, RBI circular explained





In India, the ongoing 21 days lockdown will have a huge impact on the economy and will thus affect all of us financially in some way or the other.There are still a lot of questions and misconceptions about this circular. We shall now interpret the circular and look at the key highlights of it. We will also answer as to whether one should take benefit of the said circular or not?


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In this tough time of COVID-19 pandemic, the world has come to a standstill. Nearly all the economic activities around the world are stopped by the countries. In India, the ongoing 21 days lockdown will have a huge impact on the economy and will thus affect all of us financially in some way or the other. In order to provide some relief, central government and state governments have come out with various economic packages for the daily wage earners and those who are depended on daily earnings.

Reserve Bank of India, on 27th March 2020 has also come out with a financial stimulus for middle class salaried employees and small and medium business owners. The RBI in its circular has mentioned, “ In respect of all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all instalments falling due between March 1, 2020 and May 31, 2020. The repayment schedule for such loans as also the residual tenor, will be shifted 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.”

Refer to read more about the RBI circular here

There are still a lot of questions and misconceptions about this circular. We shall now interpret the circular and look at the key highlights of it. We will also answer as to whether one should take benefit of the said circular or not?

What does this circular say?

All the commercial banks, co-operative banks, all-India financial institutions and NBFCs can grant relief to all the term loan borrowers and credit card holders from the payment of their EMIs and credit card dues falling between 1st March 2020 and 31st May 2020. It should be worth noting that this is not a waiver by the banks but just a deferment of payment. For example, Mr. A has EMI due in this period of say Rs. 10,000. Then he can opt not to pay the EMIs during the said period. But he has to clear all his EMIs after the period is over. There will be no penal actions against the person opting to take benefit of the circular and also his or her CIBIL score will not be affected due to such non-payment.

Should one opt for this?

If you decide not to pay your EMIs and dues then it should be noted that you will be charged interest on your EMI and dues portion. In case of a term loan, EMIs cover a portion towards principle and a portion towards interest. Continuing the above example, if Mr. A does not pay his EMIs, then banks will charge interest on the EMI, i.e. on the principle and also on interest. In case of credit card dues, the banks will charge interest on the outstanding dues.

Before deciding to avail the benefit, one should note that such interest payments can result in a huge outflow of cash as the rate of interest will be rate at which term loan is sanctioned to you. But in case of credit cards, banks charge a huge rate of interest which can go as high as 3% per month.

According to SBI,”To avail a loan of Rs.6 Lacs with a remaining maturity of 54 months, the additional interest payable would be Rs.19,000 approx. equal to additional 1.5 EMIs and to avail a loan of Rs.30 Lacs with a remaining maturity of 15 years, the net additional interest would be approx. 2.34 Lacs equal to 8 EMIs.”

So, it is advised that if someone has cash available for the payment of the EMIs and dues then that person should not skip the payment.

Jayant Gattani is an established Chartered accountant and has given various views on ongoing economical and financial situation in the country.

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