By Ankur Mishra
Borrowers opting for the three-month moratorium granted by their lenders will have to pay compounded interest at the end of the period, Sunil Mehta, chief executive, Indian Banks’ Association (IBA), clarified in a frequently asked questions (FAQ) document reviewed by FE. Banks have individually started announcing Covid-19 regulatory package in a response to RBI’s announcement of three months moratorium on term loans including corporate, MSME, agriculture, retail, housing, auto and personal loans. Bank of Baroda, Central Bank of India, Canara Bank and Punjab & Sind Bank detailed three-month moratorium on term loan instalments as part of package, among other reliefs.
The organisation of banks has urged borrowers to avail relaxations only if there is a disruption in cash flows or loss of income due to Covid-19. Explaining the moratorium on term loans, Sunil Mehta said: “You must take into account that the interest on the loans, though not mandatorily payable immediately and gets postponed by 3 months, continues to accrue on your account and results in higher cost.” By giving an example of a borrower who has taken 100,000 term loan with 12% interest, he said: “Every month you are liable to pay Rs 1,000 as interest. In case you opt not to service the interest every month, you are liable to pay interest at 12% p.a. and accordingly you will pay Rs 3030.10 at the end of 3rd month.”
Similarly, in case of credit card, the interest will be charged by the issuer on unpaid amount in three months from March 1, 2020. Although no penal interest will be charged during this period, he clarified.
In the case of borrowers where (EMI) automatically got deducted by the bank using electronic clearing service (ECS) and the customer seeks refund, Mehta said such borrowers need to get in touch with the bank for the revised mandate.
For corporate borrowers, IBA clarified that NBFCs, micro-finance institutions (MFIs) and housing finance companies (HFCs) are not eligible for working capital relaxation provided. RBI on March 27 allowed banks to recalculate drawing power by reducing margins and reassessing the working capital cycle for the borrowers in case of working capital. However, RBI has made provision for sufficient liquidity support to these financial intermediaries under recently-introduced targeted longer-term refinancing operations (TLTRO), Mehta added.