Gangtok, April 6: On March 27, it was announced by The Reserve Bank of India (RBI), that all lending institutions, which include all commercial banks (including regional rural banks, small finance companies and local area banks), co-operative banks, all- India Financial Institutions and NBDCs (including housing finance companies and micro-finance institutions) will have to give its borrowers a three-month moratorium on term loans. The moratorium is for payment of all instalments falling due between March 1, 2020, and May 31, 2020. According to the RBI, the deferred instalments under the moratorium will include the following payments falling due from March 1, 2020, to May 31, 2020:
- Principal and/or interest components.
- Bullet repayments.
- Equated monthly instalments (EMIs).
- Credit card dues.
A moratorium period is referred to the period of time during which the borrower does not have to pay an EMI on the loan taken, this period is also called an EMI holiday. A moratorium is usually offered to help individuals who are facing financial difficulties to help plan their finances better. However, it was also clarified by the RBI that, “Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium.”
The RBI made this decision to announce regulatory measures to lessen the burden of debt brought on by the COVID-19 pandemic and to ensure the continuity of viable businesses. It was felt that there may be a temporary disruption in the cash flow, and in some cases, loss of income, for the businesses/individuals and the present measures work to bring relief to those business/ individuals. This moratorium will be applicable for All Term Loans (including Agricultural Term Loans, Retail, Crop Loans and loans under Pool Purchases), Cash Credit/Overdraft are eligible to avail the benefits under the package, all accounts, which are Standard Assets.
This has been extended across the board to all the borrowers by extending repayment of Term Loan instalments (includes interest) by 90 days. The original repayment period for Term Loan instalments (includes interest) by 90 days. The original repayment period for Term Loans will get extended by 90 days e.g. a loan repayable in 60 instalments maturing on 1 March 2025 will mature on 1 June 2025.
This has come as news of relief for many, especially for the self-employed and small business owners as they would have found it difficult to service their loans due to a loss of income during this period of lockdown. It has to be noted that even though the RBI has allowed lending institutions to give its borrowers a three-month moratorium on term loans, the banks have to get approval from their respective boards to implement this moratorium policy. Hence the decision of offering a moratorium is actually completely up to the lending institutions.
This is where the State Bank of Sikkim comes in. Even though the State Bank of Sikkim, in line with the RBI guidelines has been directed by the Chief Minister P.S. Tamang to approve the 3-month moratorium on all term loans to its borrowers, the moratorium policy has been applicable in Sikkim only for commercial loans. This policy was not extended to the salaried employees of the government or government servants since the State Government continues to provide salaries to its employees monthly.
Sikkim Chronicle spoke to State Bank of Sikkim, Phurba Wangdi Bhutia, Chief General Manager, who said, “People are under a misconception and are misguided on the term ‘moratorium’. Moratorium simply means to extend the period of loan repayment, it does not mean that the borrower has been deferred of interest, it is just that the loan repayment has been rescheduled. This 3-month moratorium by the State Bank of Sikkim is for commercial units whose business have been affected like those in the hospitality sector- hotels, taxi drivers, shop owners etc. Those commercial activities which have been affected. Government employees have been continuing to receive their salaries on time, thus not hindering their repayment. It is better for Government employees to continue with their repayments because moratorium is just an extension of the repayment period and interest will be levied on it.”