Credit card dues included in term loans on which banks can offer 3-month moratorium, clarifies RBI

New Delhi: For borrowers facing disruptions on account of coronavirus Covid-19 pandemic, the RBI on Friday (March 27) gave a big relief by allowing a three-month moratorium on payment of instalment in respect of all term loans outstanding on March 1, 2020. The apex bank also announced deferment of interest payment on working capital loans by three months, according to a statement by Reserve Bank of India.

The RBI statement clearly stated, "In respect of working capital facilities sanctioned in the form of cash credit/overdraft (“CC/OD”), lending institutions are permitted to defer the recovery of interest applied in respect of all such facilities during the period from March 1, 2020, up to May 31, 2020 (“deferment”)."

On rescheduling of payments for term loans and working capital facilities, the RBI further said, "The accumulated accrued interest shall be recovered immediately after the completion of this period."

The apex bank said, "In respect of all term loans (including agricultural term loans, retail and crop loans), all commercial banks (including regional rural banks, small finance banks and local area banks), co-operative banks, all-India Financial Institutions, and NBFCs (including housing finance companies) (“lending institutions”) are permitted to grant a moratorium of three months on payment of all instalments falling due between March 1, 2020, and May 31, 2020."

It added, "The repayment schedule for such loans as also the residual tenor, will be shifted across the board by three months after the moratorium period. Interest shall continue to accrue on the outstanding portion of the term loans during the moratorium period."

The instructions were issued to all commercial banks (including Small Finance Banks, Local Area Banks and Regional Rural Banks), all Primary (Urban) Co-operative Banks, all All-India Financial Institutions, and All Non-Banking Finance Companies (including Housing Finance Companies).

The move is expected to reduce pressure on both creditors and borrowers as the former gets relief on qualifying loans as NPAs and thereby increase provisioning for a period of three months. 

RBI Governor Shaktikanta Das also said, "All commercial banks (including regional rural banks, small finance banks and 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."

Notably, term loans include home, personal, education, auto and any loans that have a fixed tenure. Effectively, all term loans should be outstanding as of March 1, 2020, to get the three-month moratorium.

The RBI's Monetary Policy Committee in an unscheduled meeting today reduced the repo rate, the key interest rate at which the RBI lends short-term funds to commercial banks, by 75 basis points to 4.40 per cent from 5.15 per cent. The reverse repo rate was also reduced by 90 basis points to 4 per cent.