On 6th August, the Reserve Bank of India sent out a circular based on the repayment of loans. The centre told, Supreme Court that the repayment of residual loans can be extended to a period of up to two years on installments taken from March 1 to August 31. This induced a sense of relief to the borrowers. The risk of missing an EMI payment is high and severe actions would be taken by the bank which can adversely affect a person’s credit score. This credit score is essential for a person to avail loans for cars, houses, and other personal products. Lots of scrutiny is placed on a person when he needs to avail certain loans that revolve around huge amounts. When the credit score is less it reduces the chances for getting a loan. So the Reserve Bank of India has come up with a solution to provide relief to borrowers by extending the repayment of loans to around 2 years and have induced relaxation of moratorium.
Extension Of Loan Repayment:
The announcement was given after the deadline for the government’s temporary relief on loan came to an end. The Reserve Bank of India had already allowed banks and other financial institutions all over India to offer a six month extension period to all existing loan borrowers. General Tushar Mehta, that meetings were set up with central bankers and other bankers to arrive at a solution on the repayment and the waiving of interest during the repayment period. He says that it is hard to come up with a solution, since there are a lot of issues involved with GDP being down 23 percent and the economy stress. Except for the interest on the loan, most of the issues of the borrowers have been addressed. “The interest part we have discussed with the officers”, Mr Mehta said. The Supreme Court said that the government can’t depend on the decision of the Reserve Bank of India and must come up with a verdict of their own.
Mr. Mehta said that they are in the process of identifying the best solution to the borrowers based on the impact they have taken representing the centre. The National Disaster Management Authority has sent it’s “Views and Recommendations” to RBI. It states that the change in terms of conditions of the offer of moratorium for those who took advantage of it over those who went to great lengths to pay it and who did not avail the offer would totally be unfair. The offer for these loans include but are not limited to all retail products, vehicle, agricultural, home, crop loans and also credit card loans. During this period there will be no penalty charges to the customer for not paying EMIs. It’s a deferment of payment to provide relief to the borrowers.
Petitions And Hearings:
Petitions were filed by Gajender Sharma and Vishal Tiwari seeking the extension of moratorium period to help customers in extending their EMI repayment on term loans amid the pandemic. This petition was heard by a bench headed by lawyer Ashok Bhushan. The moratorium for the loan was first announced on March 1st 2020, to help the borrowers with their repayment. The six month extension period is almost over. Many individual petitioners sought the help of the court for the extension of the loan repayment period. On the other hand, several bankers including Kotak Mahindra Bank Managing Director and HDFC Chairman Deepak Parekh have asked RBI governor not to extend the repayment period asmany are taking advantage of the facility.
Lately, the RBI governor said that the moratorium on loans was only a temporary solution amidst the lockdown and that the resolution is supposed to give relief to the borrowers. The Supreme Court was prone to a number of cases headed by various judges. The plea was supposed to grant relief to the people seeking extension of relief. That is when the RBI governor decided to grant extension to all banks across India. The finance ministry came to a conclusion saying that waiving interest could affect the life of nearly 197 crore depositors, most of them who depend on interest earned from banks. Thus extending the loan repayment duration would be in favor of borrowers with longterm debt so that people with income disruptions may be able to pay with ease.
Favorable Verdict To Borrowers:
Lately the finance ministry has told all the banks, not to levy additional charges on electronic based payments or payments carried out using UPI. Even for payments that were charged additionally, the additional charges were refunded. Many petitions and charges were filed by individual petitioners and also by other petitioners. All those cases were brought to hearing and many of them attained a positive verdict, all in favor of borrowers to reduce them of their covid related relief and provide them with a more flexible repayment option for all the loans on their homes, cars and credit cards. Previously the bank has announced an extension of loans from June 1 2020 to August 31st 2020. So the tenor for loans, has been shifted by another 3 months due to the rising pandemic and increasing covid cases everyday. This ninety day extension period was also provided to NBFCs with the option of imposing these loans on their customers.
Following this extension, the latest extension of the moratorium period was announced. This time the repayment period was extended to a hefty limit of 2 years. The previously announced 90 day extension period was excluded in the 2 year extension period. So banks would not charge any extra amount or file any charges for the deferment period. After the 2 year period extension period the previous rules are applied. So banks and other financial institutions have to comply with the rules set by the government. Non-bank Financial Institutions (NBFC) may also comply with these rules. Thus NBFCs have the flexibility to provide their customers with relief by following these rules and guidelines.