Covid 19 : RBI 's 3 Month Moratorium

Desperate times call for desperate measures. The coronavirus or Covid-19, a pandemic that broke out in China, has now spread out to almost all countries of the world. India is afflicted with this as well.

The Great EMI Relief

Thankfully , a moratorium of three months of EMIs on all outstanding loans has been announced.

The statement says: "All commercial, regional, rural, NBFCs and small finance banks are being permitted to allow a 3-month moratorium on payment of instalments in respect of all term loan EMIs outstanding on March 31."

For the next three months, no EMI will be deducted from the account of anyone who has a loan outstanding. And all this without any hit on credit score. EMIs will resume after the moratorium period gets over.

This is going to be a huge relief for all EMI payers, especially for those — such as the self-employed — whose income had become uncertain in the wake of the lockdown.

The 3-month moratorium will apply to corporate loans, home loans, and car loans. Personal loans will also qualify for this.

However, even the moratorium period offered by RBI has come under question as of late. Moody's opines that the loan moratorium could cause a greater build-up of credit loss for banks. India and China have both extended such measures to deal with the liquidity crunch amid the COVID-19 crisis. Although this can provide temporary relief to borrowers, it will constrain banks from taking proactive recovery actions and could lead to an even greater build-up of credit loss once the moratoriums are lifted, reports Moody's.

Moody's, in a report on the Asia-Pacific region on Tuesday, said that while policy stimulus will shore up credit quality for larger companies in sectors including airline and oil and gas, Asia's banking sector profitability would decline from falling asset quality and lower net interest margins.