Myth vs Facts – RBI’s Covid-19 Moratorium

At the time of the Covid-19 virus, many people’s jobs were at risk. Many even lost their jobs. It’s been 2 years, but some of us have still not recovered from the loss. This loss can be in the form of money or life. During the peak time of Covid-19, paying off the monthly loans for cars and houses was difficult. And also the monthly instalments for other items. The Moratorium relieved many people as they had time to pay off their loans. The source of income for many people was affected at that time.

Concerning the credit facilities, the customers were given two options for the Moratorium facility-

1. Opt-in 

The customers whose income was affected during the virus could choose this option. It could allow them to make delayed payments within the Moratorium period defined by RBI. 

2. Opt-out

The customers whose income was unaffected even at the time of the virus could choose this option. These customers were requested to make all their payments on time. 

There was a myth that opting for a Moratorium was a good choice. People thought that delaying payments was a better option in those times. But indirectly, delaying payments was not helpful. It was increasing your interest as well as the principal amount. This, in turn, would lead to an increase in interest. So, if your income was not affected at the time of the virus, then the better option was to pay off all your loans and credits on time. This could save you from additional interest. 

Opting for a Moratorium was a choice for people

The option of Moratorium was a choice for people. All the commercial, primary, and non-banking financial institutions were included. They had to allow the customers to take benefit from this facility. The customers could also increase or decrease the credit card limit as per their wish. The period of the Moratorium would also not affect the credit score if you pay off all the debts on time. Many people understood the benefits and correctly used that time.

■ Another myth that revolved in people’s minds was that a Moratorium is a kind of a break. They thought that they could delay payments as per their choice. But the fact was that delaying payments would lead to additional interest. Many people understood this at that time. 

■ The Moratorium was offered for 3 months. It was not there to save you from the interest. On the other hand, it increased the loan amount. This happened because the amount was getting added to the principal amount. This amount was to be paid in the future. Hence, along with delaying payments, you were increasing the loan amount.

However, if you did not opt for a Moratorium, you could maintain the perfect cash flow. 

But we cannot ignore the fact that it was needed for some people. The people whose income was affected opted in. So many people lost their jobs. They did not have any other source of income. This made it impossible for them to pay off loans during the lockdown. So it even proved to be helpful for some people. 

RBI had presented well-organized planning for this purpose. A proper resolution framework was developed. It divided the customers into two groups. This helped in further organization. First was the individual who has taken loans. The second group had small businesses. Easy payment options were given to them. Proper measures were taken to benefit everybody. 

The period and all the other things were decided based on the income sources.

The maximum period for the Moratorium was decided to be 2 years. This period was from the date of putting the resolution into effect. Everything was planned to ease the difficulties of people.

• The financial institutes were advised to keep a proper record of everything. This would help them to change the given period. This was done to ease the difficulties of the customers. However, there were some conditions to increase or decrease the period of the Moratorium. This was according to the framework proposed by RBI. All the instructions are mentioned in it.
• Also, the financial institutes were allowed to take decisions. This allowed them to work according to their own rules and regulations. This was done to satisfy the financial institutes with their own rules. Hence, the framework was really helpful for everyone. 
• The financial institutes had to prepare a report every 3 months. This report was required to include the financial statements of the borrowers. It also had to describe the period for each payment. This could make everything easier and clearer. The best thing was that the financial institutes had to present it yearly. By this, they could have enough time to look into matters. 
• The credit score was to be structured again. This was to be done under the new rules at the time of Covid-19. This was also to be done according to the framework. All the accounts were also to be made again. This would provide some relief to the customers as well as to the financial institutes. 
•  You still needed to pay the loans even if you opt for more time under the Moratorium. It provided some comfort related to time, but the amount was still to be paid. 

Conclusion

In the end, the period under Moratorium was helpful. But the amount for interest was added to the principal loan amount. So many people who lost their job took benefit from it. After all, it was there to ease the problems of people. Also, a framework was prepared for the financial institutes. This made everything more clear to everyone. The people who took a Moratorium to save themselves from paying instalments for a few months suffered a lot. On the other hand, the people who planned everything benefited from it. Visit Piramal Finance to know more.