The Reserve Bank of India announced measures to improve the economy in response to the COVID-19 crisis. All financial institutions are permitted to allow a moratorium of three months on payments of installments of all term loans and credit card dues arising between 1st March 2020 and 31st May 2020. The RBI has clarified the same in this circular dated 27th March 2020.
Please note that the moratorium does not apply to interest charges.
For example, if you have Rs 1,00,000 due as on 3rd March 2020 and you take advantage of the moratorium till 31st May 2020, the dues payable on 3rd June 2020 could be as high as Rs 1,15,000 (Rs 1,00,000 (due amount) + Rs 15,000 (interest amount and other charges)).
Experts recommend that you continue paying your total due amount (or as much as possible) within the due date to avoid interest charges at 36 – 42% compound annual interest rate if you can.
Please read the FAQs below to understand the moratorium well and its implications.
FAQs on RBI Announcement on Loans:
- What is the 3-month RBI moratorium period for Credit Card dues?
Given the circumstances of the global pandemic, RBI has allowed banks to push the ‘Billed Credit Card dues’ falling between 1st March 2020 to 31st May 2020. This is not an exemption from repaying the amount. The payment can only be “deferred” by 3 months as per RBI notification and subsequent clarifications dated 27th March 2020.
If you take advantage of the moratorium, your credit score may not be impacted by non-payment of credit card dues for 3 months till 31st May 2020, but interest fees will continue to be charged at current rates or as specified by your credit card issuing bank.
For term loans, all EMIs will be shifted by 3 months i.e March 2020 EMIs will be due in June 2020 and May 2020 EMIs will be due in August 2020.
For credit card dues, billing will be restored on 31st May 2020. To avoid late fees and interest charges from 31st May 2020, you will have to pay your total due amount. If you pay your minimum due, you will avoid late fees but will be levied interest charges on the outstanding amount.
- Does this moratorium apply to all consumers including me?
The RBI has permitted banks to offer the moratorium at their discretion. Banks can define parameters of eligibility if any. Bank-specific processes will be published next week on how consumers can avail of this option.
- If I take this option, will interest charges be levied for the deferred period of payment?
The RBI notification has clearly specified that interest will continue to be charged on the outstanding amount during the 3-month deferment period.
- What do I have to pay after 3 months?
Opting for 3 months ‘deferment’ option allows you to delay the payment of your credit card dues till 31st May 2020. As per our understanding of the circular, you will be expected to pay your outstanding amounts and the interest charges on the due date after 31st May 2020 to avoid late fees and impact on credit score.
- Will taking this option impact my credit score?
Exercising this option may not impact your credit score since the banks may not report it as a “default” to RBI recognized credit bureaus. More clarifications are expected from the RBI and banking institutions.
- If I want to avail of this option, how can I do it?
Your credit card issuing bank will release guidelines around the RBI notification by next week. These will include details on which customers are eligible and how they can avail the option. As of now, we recommend that you continue paying your total dues on the due dates to avoid any fees and charges if you can.