Why was the EMI Holiday Announced?

In response to the unprecedented humanitarian crisis caused by the COVID-19 pandemic, the Indian Government implemented a 21-day nationwide lockdown in March. While necessary for public health, this measure resulted in significant economic losses, particularly for self-employed individuals. Many people found it challenging to continue their loan repayments, prompting the Finance Ministry to propose a temporary moratorium on EMIs to the Reserve Bank of India (RBI).

What Measures Were Announced by RBI on March 27th, 2020 to Mitigate the COVID-19 Crisis?

To help alleviate the economic strain, the RBI announced several measures on March 27, 2020. They are as follows:

1. A 3-month moratorium on loan repayments, meaning borrowers are not required to pay loan EMI installments during this period.
2. According to the new RBI directive, EMIs will not be deducted from an individual's bank account during the moratorium.
3. Borrowers' credit scores will not be downgraded.
4. The risk classification of the loan will remain unchanged.
5. There will be no financial penalties for not making payments.
6. Interest rates will not increase.
7. The terms and conditions of the loan agreement will not be altered.
8. All banks and Non-Banking Financial Companies (NBFC) are permitted to implement the above rules on the repayment of term loans outstanding as of March 1st, 2020.

Recent Developments

1. The Reserve Bank of India (RBI) extended the moratorium on loan repayments until August 31. Many sectors, including the Apex Transporter's body AIMTC, have requested the RBI to extend the moratorium until December 31, 2020, due to weak demand and the potential impact on over 20 crore individuals.
2. On September 1, the RBI and the Indian Government informed the Supreme Court that the moratorium period could be extended by 2 years due to the ongoing pandemic.
3. On September 3rd, the Supreme Court issued an interim order stating that accounts not declared as Non-Performing Assets (NPA) as of August 31st would not be declared as NPAs until further notice.
4. The RBI Governor recently announced that banks could extend the loan moratorium by 12 months, 6 months, or 3 months. The RBI established a committee under K.V. Kamath on August 7th to recommend parameters for restructuring stressed loans. According to the K.V. Kamath committee's recommendations, 26 sectors were identified for loan restructuring.

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