In a bid to ease the pain of banks and borrowers owing to the Covid-19 crisis, the RBI has provided three-month moratorium on payment of instalments on terms loans (outstanding as on March 1). According to the RBI circular payment of all instalments – principal and/or interest components, bullet repayments, equated monthly instalments and credit card dues – falling due between March 1, 2020, and May 31, 2020, will be eligible for the relief.
But there are several operational challenges that banks may have to grapple with to implement the moratorium. For one, the RBI has left it to the lending institutions to frame policies and take board approval for executing the moratorium. With the lockdown in place (and most key members working remotely from home), how fast lenders will be able to do so needs to be seen.
Auto debit facility
Next, what happens to the EMI or payments already made in March? Most of the time, EMIs are executed through banks’ auto debit facility. With the month coming to an end (and most EMI payments usually set for the beginning of the month), banks will have to allow borrowers to reverse the auto-debit transaction (if they so wish), as the RBI’s relief pertains to repayments from March 1. In case of NBFCs or HFCs, the reversal (from another bank account) gets more complicated.
Three, banks may have to provide a default halt to upcoming auto-debit facilities. Borrowers will have to be sent notifications through e-mail or SMS and given the option to opt out of the moratorium. All of this will involve a lot of back and forth communication between the banks and borrowers, which, given the lockdown, will be a herculean task (remember back office operations and branch banking operations have been severely impacted).
Lastly, tax breaks are available on repayment on home loan. If a borrowers wishes to reverse the payment made already in March, he may have to re-compute the tax liability for year ending March 2020 and pay the difference in tax on the amount so reversed (on account of lower tax break).