Additional Extension of EMI Moratorium

As a significant relief measure, the Reserve Bank of India (RBI), on 27th March 2020, allowed all commercial, rural, co-operative banks, financial institutions, and non-banking financial corporations to offer a three-month moratorium (i.e., 1st March 2020 to 31st May 2020) on term loan installments for loans outstanding as of 1st March 2020. This action was crucial during the economic disruptions caused by the COVID-19 pandemic.

Further expanding on these measures, the Reserve Bank of India announced a further extension through a circular dated 23rd May 2020. The reliefs provided in this circular are detailed in the following sections of this article.

Recent Relief Measures Announced by RBI

The various reliefs announced by the RBI on 23rd May 2020 are presented below:

Re-scheduling of Term Loan Payment:
The RBI has allowed banks and financial institutions to extend the EMI moratorium by an additional three months, from 1st June 2020 to 31st August 2020. This extension is applicable to term loans, agricultural loans, retail loans, and crop loans, providing significant relief to borrowers during these challenging times. Despite the moratorium, interest on the outstanding loan balance will continue to accrue. For more details on financial deferment options, visit our Income Tax Attachment and Recovery page.

Re-scheduling of Working Capital Facilities

Lending banks and financial institutions have the flexibility to defer the repayment schedule for working capital facilities such as Cash Credit (CC) and Overdraft (OD) by an additional three months, i.e., from 1st June 2020 to 31st August 2020. This allows the accumulated interest during the deferment period (six months, from 1st March 2020 to 31st August 2020) to be converted into a funded interest term loan that must be repaid by 31st March 2021.

Easing of Working Capital Financing

Banks can recalculate the drawing power by reducing margins on working capital until 31st August 2020. Additionally, they are allowed to review and adjust working capital limits up to 31st March 2021. To understand more about maintaining financial efficacy, consider our insights on FSSAI Guidelines.

Re-scheduling of Asset Classification

Adjustments such as converting accumulated interest into a funded interest term loan and altering credit terms will not be considered concessions due to financial difficulty, and therefore, will not lead to a downgrade of asset classification. Determining asset classification will thus be based on the new relief measures provided. Understanding asset classifications further can aid in financial planning. See our FSSAI and Catering section for more business insights.

Conclusion

The extension of the EMI moratorium and other related reliefs by the Reserve Bank of India offers valuable support to individuals and businesses experiencing financial distress due to income disruption and cash flow issues. Importantly, while the moratorium prevents penal charges and does not impact credit scores, interest costs will continue to accumulate during this period. For more on safeguarding your financial interests, explore our resources on Trademark Protection and Design Registration.

For further guidance on managing financial obligations during this period, you might find our section on Pradhan Mantri Jan Dhan Yojana insightful. Additionally, understanding employer obligations can be streamlined by reviewing our PF Registration Guide for Employers.

Back to Learn

Frequently Asked Questions

Common questions about Additional Extension of EMI Moratorium.

The Reserve Bank of India (RBI) has announced an extension of the moratorium on term loan instalments and working capital facilities by an additional three months, from June 1, 2020, to August 31, 2020. This is in addition to the initial three-month moratorium granted from March 1, 2020, to May 31, 2020, as a relief measure due to the economic disruptions caused by COVID-19.

The EMI moratorium extension is applicable to all commercial banks, rural banks, cooperative banks, financial institutions, and non-banking financial corporations (NBFCs). It covers term loans, agricultural term loans, retail loans, crop loans, cash credit, and overdraft facilities.

Yes, the interest will continue to accrue on the outstanding portion of the loans during the moratorium period, even though the payment of instalments is deferred.

Banks and financial institutions are allowed to defer the payment of interest on working capital facilities like cash credit and overdraft for the period from March 1, 2020, to August 31, 2020. The accumulated interest can be converted into a funded interest term loan, which needs to be repaid by March 31, 2021.

The conversion of accumulated interest into a funded interest term loan and changes in credit terms due to the moratorium will not be treated as concessions granted due to financial difficulty. Therefore, it will not result in the downgrade of asset classification.

Yes, banks and financial institutions are permitted to recalculate the drawing power by reducing the margins until August 31, 2020. They can also review the working capital sanctioned limits up to March 31, 2021.

No, the postponement of loan repayments due to the EMI moratorium will not incur penal charges or impact the credit score of borrowers.

The EMI moratorium is an optional relief measure provided by the RBI. Borrowers can choose to avail the moratorium or continue with their regular loan repayments.

The EMI moratorium extension provides relief to borrowers facing cash flow challenges and income disruptions due to the COVID-19 pandemic. It allows them to defer their loan repayments and manage their finances more effectively during these difficult times.

The RBI has not specified any deadline for borrowers to avail the EMI moratorium extension. However, it is advisable to consult with the respective banks or financial institutions to understand the process and applicable timelines.