Updated: April 1, 2020 12:48:56 pm
While the RBI on Friday permitted banks to allow moratorium of three months on payment of instalments in respect of all loans including home, car and personal loan among others, leading banks and housing finance companies (HFCs) are set to extend the moratorium option to all their customers and the communication to customers will be sent through mails and messages beginning Tuesday.
Banking sources confirmed that ICICI Bank, HDFC Ltd, State Bank of India and Axis Bank, among others have decided to provide the moratorium option to all customers irrespective of the amount and tenure of the loan.
“The back-end is being worked upon and we should be able to send out mails and messages to all customers beginning tomorrow. We are trying to work out customised solution in the manner that each customer will reach a link where once he enters the loan account number, he will also get details like if he opts for the moratorium then by how many months the loan tenure will increase and how much shall he increase the EMI (post the moratorium period) to keep the tenure same,” said a senior official with a bank.
Once the communication is received by customers, they can opt for the moratorium which will allow them to not pay the EMI instalment for three months. When contacted, a HDFC Ltd official said, “HDFC will reach out to its customers via email and SMS, informing them to exercise their choice through a link in their website. The customer will also have the option to continue with the EMIs.”
It is, however, important to note that the moratorium period will not come free, and since the Reserve Bank of India (RBI) has said that interest will continue to accrue on the outstanding portion of the loan during the moratorium period, it may increase the customers’ burden significantly in terms of the a notable increase in tenure of the loan or increase in EMIs.
How much can the burden increase
Suppose you have a loan outstanding of Rs 50 lakh at the rate of 8.5 per cent and the tenure of the loan is 19 years. If you opt for the moratorium, the interest amount of the moratorium period (three months) gets added to your principal outstanding and in this case it would be around Rs 1.05 lakh. Now, after three months when your EMI resumes, it will be based on a loan amount of Rs 51.05 lakh and if you keep the EMI same as it was before, then the tenure of your loan will rise from 228 to 240 months, which means an additional 12 EMIs. In case you want to keep your tenure at 228 months, you will have to raise your EMI from Rs 44,272 to Rs 45,202, which is a rise of Rs 930 for a period of 228 months.
So, the cost of the moratorium is substantial on borrowers and hence, it should only be opted if individuals are witnessing erosion in monthly income and are finding it tough to service the loan.
It is, however, important to note that if the residual tenure and principal outstanding is less, then the burden is not huge. For example, if the outstanding for the same example stands at Rs 15.37 lakh for 40 more months, then if the customer opts for the moratorium, he will see his tenure of the loan increase from 40 to 41 months, with the EMI remaining same.
Even bankers say that while many thought of it as a concession when RBI announced it, it is actually not. “It is going to increase pain for the customer in the longer term and hence, borrowers who do not have liquidity constraints should not avail of the moratorium facility and pay as per the original schedule, since there is no specific advantage. It will also save such borrowers the hassles of communicating with the lender and avoid any extension of their loan period,” said a senior official with a leading bank.
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