The coronavirus-induced slowdown has affected the finances of many from salaried, self employed to professionals. The biggest burden for them is to continue paying EMIs on their loans. In order to lessen the pain, the RBI has allowed lenders to defer EMIs falling between March and May 2020. As this is an unprecedented move neither lenders nor borrowers are prepared to handle it. Banks have started implementing it gradually, while borrowers have lot of queries. We tell you what options lenders are offering if you wish to continue or defer your EMIs:
Are NBFC and HFC borrowers eligible for it?
There was a lot of confusion whether borrowers of Housing Finance Companies (HFCs) and Non Banking Financial Companies (NBFCs) are eligible for moratorium. However, the RBI has explicitly addressed all NBFCs, HFCs along with All India Financial Institutions besides banks in its communication on moratorium. It means all borrowers whether they have taken loan from banks, NBFCs, HFCs or any other institutions, can opt for moratorium benefit.
The only distinction is between term and working capital loans. Term loans are long-term loans whereas working capital loans are short term advances. Lending institutions cannot force borrowers to pay the interest accrued on term loans during moratorium period immediately after the moratorium is over. However, in case of working capital loan, the deferred interest will be recovered immediately after the moratorium.
What are your repayment options?
Some banks such as PNB have gone for blanket deferment of all EMIs on all term loans. In such cases, the borrowers who wish to continue paying their EMIs, have to contact their banks to give consent to deduct their EMIs as usual. The SBI initially offered the same, but switched the mechanism later to deduct EMIs as a default option.
Most of private lenders such as HDFC Bank and ICICI Bank have also gone for the default option of EMI deduction. It means if you do nothing, your lender will deduct your EMIs as usual. However, If you wish to defer your EMIs, you need to give your consent to the respective bank. If you choose to defer your EMIs, you have three repayment options. First, pay the accrued interest just after the moratorium period. Second, ask your lender to add the interest to your loan outstanding and extend the tenure of your loan. Third, get your EMIs increased to pay the accrued interest but keep the tenure unchanged. However, going forward the default option may get reversed.
RBI wants deferment as default option
The RBI after observing that many lenders are charging EMIs as default option has asked lenders to charge only those borrowers who contact the bank and request for deduction of their EMIs. Therefore, it is expected that very soon banks will outline operation guidelines for implementing it and will communicate the borrowers about the same.
Once the RBI guidelines are implemented by the lenders, borrowers who wish to defer their EMIs need not do anything and those who wish to continue paying EMIs, will have to apply with the bank and give their consent. Borrowers of banks such as PNB, who would have already followed the desired mechanism, need not rework their options.
Refund of EMIs already paid
The moratorium is effective from March 1, 2020 to May 31, 2020 and was announced by the RBI on March 27. Typically, major part of EMIs are paid by 15th of every month. Hence many borrowers would have already paid the EMIs for the month of the March. It took some time for banks to operationalise the deferment and hence many borrowers who have EMI dates before fifth of every month would have already paid their EMIs for the month of April also. Banks have already started processing refund of these EMIs. SBI has allowed its borrower to get refund by filling up an application form and sending an email to specified email ids. If you are unable to send the email, you can apply through your home branch.
It will take time for EMI deferment to be effective
The EMIs are deducted through various automated system which could be a standing instruction or NACH. Any changes in such instruction has to follow a due process which may take around seven working days. There are chances that your EMI may get deducted by the time the deferment request gets effective. If it happens, you can ask your bank to refund the deducted EMI.
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