RBI announces a 3-month pause on EMI repayments and interest on working capital

Reserve Bank of India Governor Shaktikanta Das on Friday announced a three-month moratorium on repayment of term loans and interest on working capital.

"All commercial banks (including non-banking financial companies or NBFCs -housing finance companies and micro-finance institutions) and lending institutions are allowed to defer interest on working capital repayments by three months," said Das in a press conference.

Moratorium period refers to the period of time during which borrowers do not have to pay an equated monthly instalment or EMI on the loan taken.

It will be applicable on payment of instalments in respect of all term loans outstanding as on March 1, 2020. Accordingly, the repayment schedule and all subsequent due dates, as also the tenure for such loans, maybe shifted across the board by three months.

In respect of working capital facilities sanctioned in the form of cash credit, lending firms are being permitted to allow a deferment of three months on payment of interest in respect of all such facilities outstanding as on March 1, 2020.

The accumulated interest for the period will be paid after the expiry of the deferment period. Banks may also reassess the working capital cycle and will not be treated as non-performing assets, Das said.

The announcement should help as equated monthly instalments or EMI repayments on loans taken will then be not deducted from bank accounts and also not adversely impact the credit score.

In a clarification issued to a TV channel after the presser, RBI said that credit card dues won’t be part of the moratorium as it’s not part of term loan. However, a few hours later in a fresh clarification, RBI  said that credit card dues are included in the term loans on which banks can offer a 3-month moratorium.

Reacting on the announcement, Chandrajit Banerjee, director-general of CII said that the moratorium on repayments of term loans for a period of 3 months will help companies tide over this period.

"However, CII would urge that this period be extended further in case the impact of the virus outbreak lasts longer than expected. The RBI governor did well to provide the assurance that all instruments are on the table to protect the economy and the financial system from either an excessive downturn or volatility," he added.

Several industry observers said that the RBI’s announcement on deferment of EMI dates is not bold. They said that all EMI due dates must be automatically deferred.

Besides, the central bank cut interest rates by 75 basis points to 4.4% and announced several measures to inject Rs 3.74 lakh crore liquidity into the system.

The RBI guv's press conference comes after Finance Minister Nirmala Sitharaman announced a Rs 1.70 lakh crore relief package for the poor on March 26.

In India, total cases of COVID-19 rose to 694 on Thursday, including 16 people who died. Globally, the pandemic virus has taken over 18,000 lives and infected over 4 lakh people.