No Pain, Shame if you Miss EMIs till May 31
Borrowers, both individuals as well as businesses, can get a three-month break from their monthly instalments and possibly credit card dues to help them cope with the situation arising out of the Covid-19 crisis. The three-month deferment for instalments due between March 1 and May 31, 2020 will help borrowers remain liquid, avoid the defaulter tag and continue having access to bank credit. Those who choose to take a three-month break from repayments will also not damage their track record with credit information bureaus. RBI governor Shaktikanta Das on Thursday directed banks to ensure that they do not report the delayed payments as a default.
RBI’s directions do not specify the kind of loans, but permit lenders across the board — including all types of banks, finance companies, housing finance companies and microfinance institutions — to provide relief to term loan and working capital borrowers. While home loans, auto loans, personal loans and loans against property come under the definition of term loans, bankers are not sure how they will provide relief to those with credit card dues (given the high interest rates) or those who have taken a loan against shares where a fall in price triggers the sale of the security.
Banks are advising borrowers who can repay to continue to make payments as there is no waiver of principal or interest that gets capitalised. Many borrowers have given standing instructions for EMIs to be deducted from their accounts. Lenders said that because of the lockdown, it may take time to make changes to their system to enable switching off of the deductions, if requested by customers. “Those who are in a position to pay should continue,” said SBI chairman Rajnish Kumar, indicating that it is a choice that will be given to customers. Kumar said that even if Rs 60,000 crore of term loans got deferred, it would not be a problem as the interest would continue to accrue and won’t effect profitability.
However, credit bureaus are saying that 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 on the basis of the announcements made by the RBI governor so that, during the moratorium period, there is no adverse impact on the credit histories and Cibil score of borrowers,” a TransUnion Cibil spokesperson said in response to a TOI query.
Other credit bureaus also confirmed that there will not be any adverse impact of holding back on repayments. “The RBI has stated that credit history will not be impacted as the deferment would not be categorised as defaults. We are optimistic that this will address the concerns of the borrowers 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 product holding (type of loans and cards one has), leverage and repayment pattern to evaluate credit risk. Currently, we are waiting to see how the EMI repayment moratorium, advised by the RBI, is implemented by the lenders,” said Experian India managing director Sathya Kalyanasundaram. “Given this, Experian will calibrate its scores to ensure that any non-payment due to moratorium is correctly captured and it does not adversely reflect on the consumer’s credit score,” he added.
Credit card-issuing banks are waiting for details from the RBI on whether interest relief is part of the package. While the RBI has made it clear that it is a deferment and not a waiver, credit card interest payments are structured around billing cycles with interest waived on the first month’s purchase. Also, credit card interest rates are very high, starting from 24% per annum.
In his post-monetary policy meeting address, Das said that all commercial banks (including regional rural banks, small finance banks, & local area banks), co-operative banks, all-India financial institutions, and NBFCs (including housing finance companies and micro-finance institutions) are being permitted to allow a moratorium of three months on payment of instalments in respect of all term loans outstanding as on March 1, 2020.Banks have been asking for this dispensation so that they do not have to classify an otherwise good borrower, whose cash flows have been hit due to Covid-19 lockdown, as a defaulter.