Due to the extreme economic slowdown and halt on production as well as all other economic activities during this All India lockdown, one of the biggest concerns facing the citizens especially the middle class, was the re[ayment of loans. While work from home has been mandated by the government, it is not a feasible option for a lot of occupational positions to work from home. Understanding this the biggest bank in India, the State Bank of India made an announcement to bring relief to the panicking working classes.
“What does it mean?”
Following the decision of the Reserve Bank of India for a three-month moratorium on loan EMIs amongst other steps to minimize the economic struggles faced by the people due to the lockdown, the SBI announced that all term loan EMIs will be deferred by three months automatically which means that the EMIs for all home loans, car loans, personal loan/term loans get deferred by three months. Announcing the decision, SBI Chairman Rajnish Kumar told CNBC TV, “Installments will get automatically deferred by 3 months for term loans and customers don’t have to apply to banks for it.”
The Reserve Bank of India (RBI) governor Shaktikanta Das had announced that”, all
banks and NBFCs have been permitted to allow a moratorium of 3 months on
repayment of term loans outstanding on March 1, 2020.” “RBI Mandated Measure”
“All commercial banks (including regional rural banks, small finance banks, and local
area banks), co-operative banks,all-India Financial Institutions, and NBFCs (including housing finance companies and micro-finance institutions) (“lending institutions”) are
being permitted to allow a moratorium of three months on payment of installments in respect of all term loans outstanding as on March 1, 2020,” the RBI also stated.
These steps were taken to ease the capital pressure on the working classes and to
minimize the liquidity costs. Moratorium on loans is said to give major relief to
consumers “The moratorium on housing EMI’s and deferment of interest payments by three months will give a lot of relief to consumers as they can now rearrange their finances. Loans, on the whole, will be cheaper and consumers can save money owing to the measures.
Banks will now be persuaded to lend at lower rates of interest and this will put more
money in the hands of people and create a higher demand in the overall economy as
consumption would go up,” Surendra Hiranandani, the Managing Director had stated in an interview.
Going by the RBI statement, availing such a moratorium would also not lead to a downgrading of the borrower’s credit rating or affect the risk classification of the loan. Further, availing the moratorium will not entail any change in the existing terms and conditions of the loan. If the existing terms and conditions of the loan contain conditions/charges related to a moratorium then these may apply depending on the moratorium policy adopted by the lending institution.
These measures would allow more savings to be accumulated and an exponential increase in money supply to be available with the people struggling in times of a major economic fallout.
This measure allows an increase in money supply and thus increasing the funds with the people to avail of necessary items. This step was first introduced by the Kerala government to provide relief to the suffering. Though at that time the Central Government had appealed against this decision in court, it now seems to have adopted similar measures to help cope with the impact on regular citizens whose earnings have been severely impacted by the nationwide lockdown.
The people seem to have heaved a sigh of relief as the burden of paying such loans has been lifting for a period of three months to recuperate from the adverse effects faced by the economy due to this pandemic.