No pain, pity if you fail EMI until May 31

Mayur Shetty | TNN

Mumbai: Borrowers, both individuals and businesses, can get a three-month break from their monthly fees and possibly credit card fees to help them cope with the situation arising from the Covid-19 crisis. The three-month deferral for installments due between March 1 and May 31, 2020 will help borrowers stay liquid, avoid the default label, and continue to have access to credit.

Those who choose to take a three-month break from repayments will also not harm their record with credit bureaus. On Thursday, the governor ordered banks to make sure not to report late payments as default.

RBI's instructions do not specify the type of loans, but they do allow lenders across the board, including all types of banks, finance companies, housing finance companies, and microfinance institutions, to provide relief to fixed-term and working capital. While home loans, auto loans, personal loans, and property loans are included in the definition of term loans, bankers are unsure how they will provide relief to those with credit card fees ( given the high interest rates) or those who have taken a loan against stocks where a fall in the price triggers the sale of the title.

Banks are advising borrowers who can pay to continue making payments, as there is no capital or interest exemption that is capitalized. Many borrowers have issued standing instructions to be deducted from their accounts. Lenders said that due to the lockout, it may take time to make changes to your system to allow for deductions to be turned off, if requested by customers. Those in a position to pay should continue, OSE President Rajnish Kumar said, noting that it is an option that will be given to clients. Kumar said that even if Rs. 60 billion of deferred loans were deferred, it would not be a problem as interest would continue to accrue and would not affect profitability.

However, credit bureaus say borrowers will not lose if they take advantage of the moratorium. In line with this RBI announcement, we would work closely with our members to define the data reporting framework based on announcements made by the RBI Governor so that, during the moratorium period, there is no adverse impact on credit histories and Cibil score of borrowers, ”said a TransUnion Cibil spokesperson in response to a TOI inquiry.

Other credit bureaus also confirmed that there will be no adverse impact of withholding on repayments. The RBI has stated that the credit history will not be affected as the deferral would not be classified as a default. We are optimistic that this will address borrower concerns and help maintain healthy credit scores and financial stability, ”said CRIF High Mark CEO Navin Chandani. A consumer's credit score is a composite value calculated after taking into account the product's tenure (type of loans and cards one has), the leverage and repayment pattern to assess credit risk. Currently, we are waiting to see how lenders implement the EMI reimbursement moratorium, advised by the RBI, ”said Dr. Experath India MD Sathya Kalyanasundaram. Given this, Experian will calibrate its scores to ensure that any default due to the moratorium is captured correctly and is not negatively reflected in the consumer's credit score, he added.

Credit card-issuing banks are awaiting details from the RBI on whether the interest relief is part of the package. While the RBI has made it clear that this is a deferral and not an exemption, interest payments on credit cards are structured around billing cycles with exemption from interest on the first month's purchase. Also, the interest rates on credit cards are very high, starting from 24% per year.

In his post-monetary policy meeting speech, Das said that all commercial banks (including regional rural banks, small finance banks and local area banks), cooperative banks, financial institutions across India and NBFCs (including home finance companies and microfinance institutions) are allowed to allow a three-month moratorium on installment payments on all term loans effective as of March 1, 2020. Banks have been requesting this waiver so they do not have to otherwise classify a good borrower, whose cash flows have been affected by the Covid-19 blockade, as delinquent.