Borrowers who are suffering from financial crisis can opt for a loan moratorium or a restructuring to avoid further deterioration of their credit score. The RBI allows borrowers to extend the moratorium period up to two years, which is a win-win situation for both parties. However, the process of extending the moratorium period is more complicated and expensive than a regular restructuring. The duration of the loan moratorium can be extended up to a maximum of five years, but it can be extended for up to four years.

Borrowers who have already availed a restructuring facility can opt for a second one. Under this second one, the overall moratorium period shall be two years and the residual tenor shall be extended up to two years. The Supreme Court has recently extended the moratorium period for a further five years. The Ministry of Finance and RBI are asked to come up with solutions that would help borrowers in the short term.

While applying for a loan moratorium, borrowers should continue making EMI payments as per the original repayment schedule. Sometimes, due to cash crunch, it becomes impossible to meet the EMIs. In this case, they can apply for a loan moratorium. The term “moratorium” is defined as a postponement or deferment of EMI payments. After the moratorium period ends, borrowers can resume making EMI payments.

For those who are already in a debt moratorium, the RBI has ordered all banks to report moratorium cases as’restructured’ on credit bureaus. While this may not be the case for all borrowers, it is a good idea to check your eligibility for a moratorium before requesting one. In the interim, you may be able to request the lender to continue your current EMI payments while your application is pending.

During a moratorium, borrowers must continue paying EMIs as per the original repayment schedule. This is a good idea if you can’t make your monthly repayments on time. This will help you stay on top of your payments. But if the EMI payments are too much, a loan moratorium could worsen your financial situation. During this time, a moratorium can also delay your EMIs.

Loan moratorium and restructuring have similar effects. While the latter defers the EMI payments, it does not waive the interest. Therefore, additional interest will continue to accrue during the period of the moratorium. In a loan restructuring, the lender will often waive your EMIs, which can increase your credit score. If you have a new restructure, it may extend the life of the loan, but it may also increase the interest rate.

The impact of a loan moratorium is likely to be felt in late 2020 or early 2022. In the meantime, banks have been setting aside pre-emptive provisions since early 2020 to anticipate the effects of the new legislation on asset quality. The relaxed loan restructuring approach means that the bank will not immediately see the bad loans, but the problems will gradually emerge over time. The government’s latest moves are designed to help borrowers make regular repayments in the interim.

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