The Reserve Bank of India, on March 27, allowed all the banks and financial institutions to extend a three month moratorium to all the term loans and EMI payments which are due to be paid between March 1 and May 31. This move has been made in order to provide relief to those who are not able to pay the EMI (Equated Monthly Instalments) as a result of the Covid-19 pandemic. Although the three-month moratorium allows for the postponement of the repayment of dues, but the RBI made it clear that “interest shall continue to accrue on the outstanding portion of term loans during the moratorium period”. However, the banks shall not charge any extra amount in terms of penal interest.

The State Bank of India Chairman Rajnish Kumar, as response to the move, said "Instalments will get automatically deferred by 3 months for term loans and customers don't have to apply to banks for it”. However, the circular issued by the RBI stated that the “Lending institutions shall frame Board approved polices for providing the above mentioned reliefs to all eligible borrowers. Wherever the exposure of a lending institution to a borrower is Rs 5 crore or above as on March 1, 2020, the bank shall develop an MIS on the reliefs provided to its borrowers which shall inter alia include borrower-wise and credit-facility wise information regarding the nature and amount of relief granted”. He further made it clear that the banks have the authority to frame their policies on new loans giving due consideration to the customers’ ability to the repay in these times.  He appreciated the move stating that such a situation has never happened before due to lockdown. It is important to note that the credit score will not be affected as a result of the postponement of repayment of dues as it would have otherwise as a borrower’s credit history is negatively affected in case of deferred payment.

Despite the moratorium being an effort to reduce the burden of farmers, daily wage workers, business entities who are struggling with the lack of liquidation due to the nationwide lockdown, it is not mandatory to avail the moratorium and postpone the payment of dues. It is important to note that moratorium is not a waiver and availing it also results in increasing your liability during the 3 months as the interest shall keep on accruing on the remaining amount. The SBI chairman has thus, made it clear that the scheme will be beneficial only for the ones who are unable to make the payment of their dues.