What can I do if I am unable to pay EMI during coronavirus lockdown?

The COVID-19 pandemic has disrupted ordinary life in an unprecedented manner for the entire human race. The Indian government’s lockdown measures which have extended well over a month have brought most sectors of the economy to a complete standstill, thereby leaving the common Indian man with a severe liquidity crunch.

With this sudden interruption in regular life, most Indians are finding it hard to meet their debt repayment obligations. Realizing this problem, on 27^th march 2020, the Reserve Bank of India (RBI) has announced a regulatory package to ease the burden of payment of equated monthly instalments (EMIs). This regulatory package provides banks with the option of reaching out to customers to avail a loan repayment moratorium of three months for pre-existing loans. The moratorium is not to be understood as a complete waiver of the EMIs but instead a grace period for the months of March, April and May. Thus, if a person defaults in payment of his/her EMIs for these months, such default will not be penalised in any form by the bank such as late payment fees, penalty, blacklisting or decrease in credit rating of the individual.

However, the existing loans will continue to carry the interest burden for unpaid EMIs in these three months. This means that although a customer may choose to opt for non-payment of EMIs for any or all of these three months, nevertheless the interest will continue to add up on the unpaid amount and will result in an increased repayment burden either in the form of an increase in the EMI amount or an extension in the remaining term of the loan.

The steps implemented by the RBI seem like a welcome step to help borrowers, but people must think wisely before making the decision of whether to opt for this moratorium or not. The impacts of non-payment of EMIs may only be noticed in the long term with loans having longer repayment tenures being affected the most severely. Thus, the moratorium should only be opted for in dire situations.

The details of the specific plans implemented by each bank is available on their respective websites with the all the information such as eligibility criteria and other details. The said moratorium applies to term loans and any form of credit with a fixed tenure.

Therefore, people severely affected by the COVID-19 lockdowns have been provided with some sense of relief by the government, but the decision to claim this beneficial scheme must be given a serious thought keeping in mind the exact financial impact and your liquidity in these testing times.