Sometimes, a situation arises when a lot of debtors are not able to repay the loans, and the banks and financial institutions are not able to enforce repayments.
It can be a pandemic, a war, or a natural calamity which disturbs the financial equilibrium, and there is no option left but to delay loan repayments.
This phenomenon is called debt moratorium, and national governments implement this due to political/economic stress.
Recently, the Govt of India implemented EMI moratorium for millions of debtors, who were severely impacted due to coronavirus and the subsequent lockdowns.
In this article, we will share What is EMI Moratorium, and what is moratorium period. We will also share some examples of EMI and debt moratorium which has happened in the past, in other nations, and give a glimpse on Moratorium Period for Business Loans.
But first, what is EMI moratorium.
What Is EMI Moratorium?
When a sovereign nation decides to collectively allow all the debtors not to repay EMIs on their loans, then its called as EMI moratorium.
The word “moratorium” means ‘a temporary prohibition of an activity.’
And EMI moratorium means allowing temporary delay of EMIs for a large group of debtors. Usually, a Moratorium on Loan Repayment is valid for all types of loans such as credit cards, home loan, auto loan, business loans, personal loans, educational loans, and more.
When such a moratorium on loans are announced, the most important thing to ask is, What is Moratorium Period?
What Is Moratorium Period?
Moratorium period on business loans and other types of loans is the time duration for which the borrowers are allowed to stop paying EMIs for debt repayments.
The exact answer to the question “what is moratorium period” depends mainly on the decision of the respective Governments, as to how much delay in payments and EMI can be accommodated for a given cause.
Although the Maximum Moratorium Period is announced firsthand, it can be extended as well, depending on the situation.
In India, RBI and Govt of India announced an EMI moratorium for three months, ending on May 31st, 2020. This meant that those who were supposed to pay EMI were allowed to delay payments from the beginning of March 1st to May 31st, 2020.
The moratorium on loan repayment was again extended for three months from June 1st to August 31st, 2020.
Hence, borrowers and lendees were allowed a moratorium on loan repayment and were legally allowed to stop EMI between March 1st to August 31st, 2020.
The reason for this EMI moratorium was the coronavirus pandemic and the lockdowns which were imposed. Due to these, all economic activities came to a standstill, and the moratorium helped the borrowers with more time to arrange funds.
Note here, that the moratorium on loan repayment was optional: Those who were able to make the payments of EMI were not stopped from doing that. But those who couldn’t pay the EMIs were allowed to do so without any penalty or additional charges.
7 Facts About EMI Moratorium In India
Who Were Eligible For EMI Moratorium?
As per RBI rules, all individual borrowers and businesses who had an outstanding loan as of March 1st, 2020 were eligible for the EMI moratorium. The Govt also waived off the interest on the EMIs for individuals, and businesses loans till Rs 2 crore, which further assisted the borrowers in managing their finances.
What About Interest On EMI Moratorium
Those who availed the EMI moratorium were required to pay interest on the EMIs. This was largely unknown to most of the borrowers that they are required to pay the interest on the EMI, which were essentially not paid. Due to the confusion, Govt of India decided to waive off interest on the loans upto Rs 2 crore. Both individual loans and business loans were covered in this interest waiver.
Impact On Credit Score Due To EMI Moratorium
RBI and Govt of India had explicitly informed that there would be no impact on the credit score of any individual or business, due to the EMI moratorium.
How To Activate EMI Moratorium?
RBI had instructed all the banks to execute EMI moratorium, for all borrowers. In order to avail EMI moratorium, the borrower had to inform their respective bank about availing the loan moratorium. In all cases of EMI moratoriums, the borrower has to inform their respective banks about availing this feature.
What If EMI Was Already Paid?
In case a borrower had already paid the EMI and then availed EMI moratorium for the next six months, then the banks were supposed to credit the EMI back into their bank account.
How Much EMI Needs To Paid After The Moratorium Period?
At the end of the moratorium period, the borrower needs to pay all the pending EMIs, along with interest. However, since the interest on the EMI is waived off now, the borrower only needs to pay the EMI.
Which Other Nations Have Implemented EMI Moratorium
In 2009, Dubai decided to impose debt moratorium for their own debt, which raised the risk of the world’s largest Government default since Argentine debt restructuring in 2001. In 2008, Ecuador announced a debt moratorium for their own loans. During the Franco-Prussian War of 1870, France declared debt moratorium for all their citizens.
Do you wish to know more EMI moratorium, and how it impacted businesses all across? Do you wish to know how you can manage the EMIs after the moratorium period ended?
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