Pay loan EMI if you can. Interest payable will increase if you don’t, banks tell borrowers

The Indian Banks' Association has put out answers to customer queries to address confusion over RBI's 3-month loan moratorium.

The Covid-19 lockdown has hit non-essential non-agricultural enterprises the most (representational image) | Bloomberg

New Delhi: A representative body of Indian banks has advised customers to pay their equated monthly installments (EMIs) and credit card dues if they can afford to do so to prevent a higher interest outgo.

Answering 15 frequently asked questions by customers, the Indian Banks Association or IBA Wednesday said borrowers should take the benefit of Reserve Bank of India’s three-month loan moratorium if there is a disruption in cash flows or loss in income.

“However, 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,” the IBA said in response to a query on whether businesses and individuals should necessarily take the benefit.

The IBA went on to illustrate with an example of how an individual with a loan outstanding could end up paying more in interest if they opt to not pay EMIs for three months.

Similarly, for credit card payments, the body explained that there is a requirement to pay a minimum amount of credit card dues and if it’s not paid, it gets reported to credit bureaus.

“In view of the RBI circular, the overdues in the credit card account do not get reported to the credit bureaus for a period of three months,” it said.

“However, interest will be charged by the credit card issuer on unpaid amount. You should check from your card provider to arrive at interest payable,” it added, along with a note of caution on the higher interest rate on credit card dues.

“Although no penal interest will be charged during this period, but you must remember that the interest rate on credit card dues are normally much higher compared to normal bank credit and you should take a decision accordingly.”

RBI had announced several measures last week to provide relief to both corporate and retail borrowers adversely impacted from the economic fallout of Covid-19. The steps had included a three-month moratorium on all term loan repayments including housing, education and auto loans, agricultural and crop loans between 1 March and 31 May.

However, banks took time to communicate with their borrowers leading to a lot of confusion, following which the government and the Reserve Bank of India had to step in and nudge banks to inform their customers and address their queries.

What IBA said

The banks in their FAQs answers explained that the borrowers can opt to defer three EMIs falling due between 1 March and 31 May. The remaining repayment tenor of the loan will accordingly be increased by three months.

The IBA also asked borrowers to contact their respective banks for seeking refund of EMIs already paid through online debit facilities. This came after many borrowers complained that banks continued to deduct EMIs for the month of March even after RBI’s announcement.

The body also asked borrowers to not get upset if a bank’s collection agent approaches them for repayment. “You should not get upset and tell bank staff/collection agent that you want to avail the benefit being extended under regulatory package,” it said.