Opting for the EMI moratorium? Prepare to pay more

MUMBAI: It is not just three monthly equivalent installments (EMI) that will be added to your mortgage loan repayments if you choose to enter. By requesting to defer EMIs only if they have no cash, banks have said that the interest for the three months would be compounded if they were not paid at the end of the period. This could lead to borrowers paying for several more months, depending on the length of their payments and whether they pay in advance.

In an illustration of how the moratorium would work, the State Bank of India said that for a loan of Rs 30 lakh with a remaining maturity of 15 years, the net additional interest would be approximately Rs 2.34 lakh, equivalent to 8 EMI. For a loan of Rs 6 lakh with a remaining maturity of 54 months, the additional interest to be paid would be around Rs 19,000, equivalent to an additional 1.5 EMI. This assumes that there is no advance payment or interest rate change. SBI also said that the bank, by default, would debit the customer's account unless asked not to.

“The moratorium facility is available to all borrowers. A call should be answered based on how desperately you need this, ”said C S Setty, MD, SBI. If the customer does not have a balance in their account and the current instructions for debit fail, the bank will treat it as an exercise of the moratorium option. Borrowers have been advised to give advance instructions to stop the debit, even if they do not have money because the bank they have may charge them for breach of the standing instruction.

The ICICI Bank has adopted a dual policy in which, for some categories of loans, it will accept the moratorium as default; for other categories, it will continue to debit the customer account as a default option. The bank said the differentiation was based on the amount of stress in the sector. For example, for loans like home, car, and personal, most customers are expected to continue paying and the default option will continue to debit the account. In other categories, such as the Kisan credit card, self-help groups, agricultural machinery loans, small business loans, and commercial advances to car dealers, among other categories, it will grant an automatic moratorium.

Last Friday, RBI allowed lenders to give borrowers a break from their EMIs to overcome the Covid-19 crisis. The condition was that the fees would be recovered at the end of the moratorium. Kotak Mahindra Bank said it would default to later dated checks and that it would activate the Electronic Clearing System (ECS) or the Automated National Clearing House (NACH). Customers who want to take advantage of the relief under the RBI circular must send a communication to the bank within seven days (or an extended date as the bank allows) from its first expiration date, Kotak Mahindra Bank said.

HDFC Bank said it would continue to collect the EMI unless the customer indicates otherwise. The starting point for the benefit of the moratorium is when the client approaches the bank or there is no payment of fees now or in the normal course of business, the bank said. He added that while the bank will not make changes to the customer's payment instructions, the bank will understand that the customer has opted for a moratorium if they skip their EMI payment during this period.