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As we all know that RBI vide Notification dated 27th March, 2020 has announced a COVID-19 Regulatory Package which includes Reschedule of EMIs falling due during the period of March 1st ,2020 to May 31st 2020 to provide relief to the borrowers and to mitigate the burden of debt servicing and also to ensure the continuity of viable businesses.

The Notification has brought both the relief and confusion among the borrowers. The borrowers are facing trouble in getting the answers of Question:

  1. Whether to opt in for EMI Moratorium or not?
  2. Whether it's a waiver or deferment?
  3. How the EMIs will be paid or recovered?
  4. How to opt for EMI Moratorium option?
  5. Whether Interest will be charged or not and if Yes what will the Rate of Interest?

So, Let's just analyze the situation.

  • EMI Moratorium is an option which allows the borrower to get relief from monthly EMI deduction for the Period March 1st ,2020 to May 31st, 2020 [3 Months].
  • Borrower needs to inform the Lender (Bank/NBFC/Housing Finance Companies) his/her interest in Moratorium scheme.
  • The mode by which the moratorium option can be opted is:
    • Net Banking
    • Phone Banking
    • SMS
What is EMI Moratorium  Whether to Opt in or Opt out  Whether it s a waiver or deferment

Every Bank has updated their respective Net Banking/Phone Banking mediums to help Borrowers opt for the scheme just by sitting at home. Some Banks have even sent messages to their customers informing them about the Package and process of opting for the Moratorium option.

Now the moratorium will only provide you relief in terms of deferment of EMI to a further period i.e, to fulfill the need of funds as COVID-19 has lead to economy coming to halt and businesses being shut, emerging with liquidity crisis.

But Relief comes with another burden of accumulating Interest which means during this 3 month Period , Interest will continue to accrue at the Borrowing Rate on the outstanding Principal.

I will explain this by way of a Loan Repayment Schedule:

Let's take an example,

   

Amount of Loan

 1,00,000

Term of Loan

12 Months

Rate of Interest

10 % Per annum

Due Date for EMI

05th of every Month starting January 2020

   

Loan Repayment Schedule

Month

Opening Balance

EMI

Interest Component

Principal Component

Closing Balance

January

100,000

8,792

833

7,959

92,041

February

92,041

8,792

767

8,025

84,017

March

84,017

8,792

700

8,092

75,925

April

75,925

8,792

632

8,159

67,766

May

67,766

8,792

564

8,227

59,539

June

59,539

8,792

496

8,296

51,243

July

51,243

8,792

427

8,365

42,878

August

42,878

8,792

357

8,434

34,444

September

34,444

8,792

287

8,505

25,939

October

25,939

8,792

216

8,576

17,364

November

17,364

8,792

145

8,647

8,717

December

8,717

8,792

75

8,717

0

Now as per the Moratorium Option EMI for period March to May (8,792 * 3 months) will be recovered with the EMI falling due on 05th June.

Therefore total payment to be done on 05th June:

1. Payment of EMI:

   

Month

EMI

March

8,792

April

8,792

May

8,792

June

8,792

35,168

 

2. Payment of Interest Accrued:

Interest that would have been Paid if no Moratorium had opted:  2,393

Interest if Moratorium is opted:  2,834

Therefore, the extra Interest that would be Paid is 441 (2,834 - 2,393)

**** The difference has been done because the EMI also includes the Interest Component.

3. Total Repayment:

EMI: 35,168

 

So, from the above, it is made clear that Deferment will provide only temporary relief as Interest will continue to accrue on the Outstanding.

At Last, I would suggest that anybody if having sufficient resources to Pay EMI should not opt for the Moratorium Option.

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