What does the 3-month moratorium on IMEs mean?

A video explaining the three-month moratorium on IMEs and its impact on customers

The RBI took action to counter economic fallout of the coronavirus pandemic. The key the interest rate has been reduced strongly 75 bp. The repo rate was also lowered by 90 basis points to 4%.

A higher reduction in the repo rate is intended to encourage banks to lend more. Banks are also allowed to defer payment of IMEs for three months.

What does this moratorium on loans mean?

The moratorium on loans forces a customer to choose not to pay monthly payments. These are term loans for the months of March, April and May. Term loans are categorized into – home loan, personal loan, car loan, and home loan. This facility is also applicable for credit card contributions.

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But that doesn’t mean that IMEs aren’t removed. The amount must be paid once the moratorium is lifted.

The moratorium is not mandatory: borrowers can continue to make EMI payments.

How does this affect customers?

The interest accumulated during these three months will be added to the principal. Due to the lack of payment for three months, the duration of residual IMEs is doomed to increase. The burden is also higher if a customer is at the start of the loan cycle.

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However, if a customer has already paid EMI for March, they can request a cancellation. Taking advantage of the moratorium will have no impact on the credit rating. Banks will not be allowed to classify the loan as a non-performing asset.

Thus, banks cannot report any defaults on this point to the credit bureaus.

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