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The Reserve Bank of India (RBI) has deferred EMI payments for three months on all terms loans and credit facilities existing on 1 March 2020. The RBI’s measures seek to ease the burden of EMI payments and liquidity concerns due to the disease, COVID-19. The government has ordered for a complete lockdown till 14 April 2020 to prevent the spread of COVID-19. The complete lockdown of business affects the liquidity and ability to pay EMIs and interest on credit facilities for working capital.

1. Business-to-Business (B2B) loan and credit

B2B loans given by banks, NBFCs, and other lending institutions to business enterprises. B2B loans include machinery loans and term loans availed for setting up or expansion of the business. B2B loans also include working capital loans such as bank overdraft, inventory loans, accounts receivable financing and other credit facilities extended to business owners.

A running business ensures a smooth flow of funds from customers to owners, thereby maintaining liquidity to meet monthly expenses and loan repayments. In a business lockdown, a business owner will find it difficult to meet the monthly instalment payments (EMI) towards term loans.

B2B loans include loans to self-employed businesses, professionals, MSMEs and corporate business houses. A lockdown puts pressure on the availability of funds for running their businesses. Hence, the RBI has put a moratorium of three months on repayment of all term loans and outstanding interest payments on both term loans and working capital loans as on 1 March 2020.

Pursuant to the RBI’s announcement, the boards of the banks will decide on the implementation of the moratorium. In the case of term loans, the tenure of the loans will be extended by three months. For example, in case of a 60-month term loan availed for the purchase of machinery, the term will stand extended to 63 months. In the case of working capital facilities, the accumulated interest on the credit facilities has to be paid after the expiry of three months.

2. Business-to-Customer (B2C) loan and credit

B2C loans are given to end consumers. The banks or financing companies lend to consumers for specific purposes such as buying a house, vehicle, electronics and so on. Housing finance companies and vehicle financing companies primarily lend and drive B2C loans.

B2C loan borrowers primarily consist of individuals who are end consumers. In the case of consumers who have availed loan from housing finance companies or vehicle finance companies, the banks can allow deferment of EMIs for three months. Similarly, in the case of other personal loans availed by consumers for purchasing electronics or anything else, the consumers will be able to avail a deferment of EMIs by three months.

BConsequently, the tenure of the consumer loan EMIs will also stand extended by three months.

3. Does the borrower have to make any declaration to avail the moratorium?

The boards of the banks will decide on the implementation of the moratorium and communicate with the customers. The borrowers (customers) need not make any declaration to avail the moratorium. Also, the borrowers do not have to cancel any standing instructions for ECS towards the payment of their EMIs.

The borrowers can seek clarification from their respective banks on the deferral of EMIs. Many banks are giving an option to the borrowers to avail of the deferral of EMIs or pay the EMIs as scheduled.

4. Will the rescheduling of EMIs amount to default?

The RBI has stated in the announcement that the extension of the tenure of the loans and deferment of EMIs and interest payments will not amount to a default by the borrower. The non-payment of the EMIs and interest on credit facilities will not negatively affect the credit score of the borrower.

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