In light of the COVID-19 pandemic, the Reserve Bank of India (RBI) introduced a loan moratorium scheme in March 2020 to help borrowers facing financial difficulties due to the pandemic.
The scheme allowed borrowers to defer their loan repayments for a period of six months, from March 1, 2020, to August 31, 2020, without any impact on their credit score.
The scheme was later extended by another six months, from September 1, 2020, to August 31, 2021, for certain categories of borrowers.
The RBI has recently announced a loan moratorium scheme for small borrowers, which aims to provide relief to borrowers who have been impacted by the pandemic.
In this blog post, we will discuss the details of the loan moratorium scheme for small borrowers and how it can benefit them.
Who is eligible for the loan moratorium scheme for small borrowers?
The loan moratorium scheme for small borrowers applies to individuals and small businesses who have a loan outstanding of up to Rs. 25 crores as of March 31, 2021.
This includes all types of loans, such as home loans, personal loans, credit card loans, and business loans.
The scheme applies to borrowers who have not availed of the loan moratorium scheme that was introduced in March 2020.
Borrowers who have availed of the previous loan moratorium scheme can also avail of this scheme if they were not classified as non-performing assets (NPAs) as of March 31, 2021.
How does the loan moratorium scheme for small borrowers work?
Under the loan moratorium scheme for small borrowers, borrowers can opt for a three-month moratorium on their loan repayments.
This means that borrowers can defer their loan repayments for a period of three months, from June 1, 2021, to August 31, 2021. The loan repayments will be deferred without any impact on the borrower’s credit score.
However, it is important to note that the interest on the loan will continue to accrue during the moratorium period.
This means that borrowers will have to pay the interest that has accrued during the moratorium period, along with the principal amount, after the moratorium period ends.
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What are the benefits of the loan moratorium scheme for small borrowers?
The loan moratorium scheme for small borrowers can provide several benefits to borrowers who have been impacted by the pandemic. Some of these benefits are:
- Financial relief: The loan moratorium scheme can provide financial relief to borrowers who have been facing financial difficulties due to the pandemic. By deferring their loan repayments for three months, borrowers can manage their finances better and allocate their resources towards more pressing needs.
- No impact on credit score: The loan moratorium scheme will not have any impact on the borrower’s credit score. This means that borrowers can avail of the scheme without worrying about any negative impact on their creditworthiness.
- No additional charges: Banks and financial institutions are not allowed to charge any additional fees or charges for availing of the loan moratorium scheme. This ensures that borrowers do not have to bear any additional financial burden for availing of the scheme.
- Flexibility: The loan moratorium scheme provides borrowers with flexibility in managing their finances. Borrowers can opt for the moratorium period if they are facing financial difficulties, and resume their loan repayments once their financial situation improves.
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What are the drawbacks of the loan moratorium scheme for small borrowers?
While the loan moratorium scheme can provide several benefits to borrowers, there are also some drawbacks that borrowers should be aware of. Some of these drawbacks are:
- Interest accrual: The interest on the loan will continue to accrue during the moratorium period. This means that borrowers will have to pay the interest that has accrued during the moratorium period, along with the principal amount, after the moratorium period ends. This will increase the overall cost of the loan and may impact the borrower’s financial planning in the long run.
- Longer repayment period: The loan moratorium scheme may lead to a longer repayment period for the borrower. This is because the deferred loan repayments will have to be paid back after the moratorium period ends, which may extend the repayment period of the loan. This may impact the borrower’s financial planning and may increase the overall cost of the loan.
- Negative impact on credit score: While the loan moratorium scheme will not have any immediate impact on the borrower’s credit score, it may have a negative impact in the long run. This is because the loan will continue to accrue interest during the moratorium period, which may lead to a higher outstanding amount and a longer repayment period. This may impact the borrower’s creditworthiness and may make it difficult for them to avail of credit in the future.
- Limited eligibility: The loan moratorium scheme for small borrowers applies only to borrowers who have a loan outstanding of up to Rs. 25 crores as of March 31, 2021. This means that borrowers with a higher loan outstanding may not be eligible for the scheme. Additionally, borrowers who have already availed of the previous loan moratorium scheme may not be eligible for this scheme if they were classified as non-performing assets (NPAs) as of March 31, 2021.
- Uncertainty around future extensions: The loan moratorium scheme for small borrowers is currently applicable only for a period of three months, from June 1, 2021, to August 31, 2021. There is no clarity on whether the scheme will be extended beyond this period, which may create uncertainty for borrowers who are currently availing of the scheme.
Final Words:
The loan moratorium scheme for small borrowers introduced by the RBI can provide relief to borrowers who have been impacted by the COVID-19 pandemic. It can provide financial relief and flexibility to borrowers who are facing financial difficulties, without any impact on their credit scores.
However, borrowers should also be aware of the drawbacks of the scheme, such as interest accrual, longer repayment periods, negative impact on credit scores, limited eligibility, and uncertainty around future extensions.
It is important for borrowers to carefully consider their financial situation and evaluate the pros and cons of availing of the loan moratorium scheme before making a decision.
Additionally, borrowers should also explore other alternatives, such as restructuring loans or partial payments, before opting for the loan moratorium scheme.
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