Borrowers unlikely to get significant gains; banks to charge interest later

NEW DELHI: The threemonth suspension of EMI payments may not result in a significant gains for borrowers as they will charge interest for the moratorium period, according to the moratorium scheme announced by stateowned banks.

Last Friday, the RBI had announced that all term loans, including retail and crop loans and working capital payments, will be covered by the threemonth moratorium. Banks will now have discretion in deciding the limits on working capital, with RBI saying that no payment miss should be considered a default and reported to credit information companies.

It seems like a double whammy for the borrowers as on one side income has been hit due to COVID-19 pandemic and on the other hand there is a threat of increased tenure if they opt for RBI relief measure.

In a note to customers, the country's largest lender State Bank of India said "interest shall continue to accrue on the outstanding portion of the term Loan during the moratorium period".

The accrued interest will be collected by the lender in the form of additional EMIS from those borrowers who opt for three months moratorium.

Explaining the financial burden with the help of an example, SBI said for a home loan of Rs 30 lakh with a remaining maturity of 15 years, the net additional interest would be approx 2.34 lakh equal to 8 EMIS for those borrowers who opt for the moratorium.

Similarly, it said, "for an auto loan of Rs 6 lakh with a remaining maturity of 54 months the additional interest payable would be Rs 19,000 approx equal to additional 1.5 EMIS".

It further said customer who do not want to defer recovery of instalments or EMI no action is required and they may continue to pay in usual course.

However, SBI said, "customer who wants to defer recovery of EMI where collections of such installment is effected through National Automated Clearing House (NACH), please submit an application along with mandate for NACH Extension to stop NACH for these installments through an e-mail to the specified email ID".