Supreme Court has taken the case on the actions of banks for taking the interest on loans in the Covid 19 pandemic situation. From the March 2020, Reserve Bank of India declared that the loans in all banks under the Reserve Bank of India are under the moratorium status and those who need the moratorium benefit should contact their bank branch and avail this.
Later, when the economic situation gets worsened, Reserve Bank of India extended the moratorium period of bank loans till 31st August, 2020. Most of the people don’t have the proper knowledge about what is bank’s moratorium?
In Supreme Court, the advocates for the banks and government appeared and said that the interest on loans is unavoidable because it is the major source of income of banks and the interest for the depositors. If there is no interest on loan, then bank could not give the interest for depositors
They think that the moratorium is the removal of EMI and the interest of the concerned months. They feel a false sense of freedom from their debt on banks at least for the moratorium period.
The above perceptions about the moratorium of banks are purely foolishness. The bank’s moratorium means the favor for the debtors in the monthly repayment- Equated Monthly Installments EMI. It is just the relaxation of the monthly payment of loan not the reduction or writing off the interest of loan or the part of loan.
It means the loan account will calculate the interest as per the interest rate of the same and the interest will be cumulated to your loan account. This cumulated interest will be taken from the loaners after the moratorium period or the Equated Monthly Installment amount will get increased or the total number of the EMI will get increased.
These are the impacts of the moratorium on loans. Again I notify you that there will not be any reduction in the interest of loans or the principle of loans in the moratorium period.
Now you may ask that what is the purpose of the moratorium on loans in this pandemic situation? Your doubt is almost correct in your perception – there is not any reduction in loan amount and interest on loans and what is this moratorium for? Here the perception is different for you and RBI.
When you take loans from the banks, they will insist you to repay the loan monthly with an amount calculated by the banks include principle and interest considering the loan amount, interest and the tenure of the loan. The EMI of loan are strict in nature and if you fail to follow that, your loan account will fall into Non Performing Asset as per the circular of Reserve Bank of India.
It will make more headaches for you and more loss. And the CIBIL score of your account will get declined if this happen and it will be affected in your next loan application. To avoid all these, Reserve Bank of India and banks gave you the moratorium.
Friends, If you didn’t repay the interest for the moratorium period or you want to get your interest reduced by banks, just think of the depositors. The depositors get the interest on the deposit from the interest of loans. That is the function of banks. If you didn’t pay the interest for loan, you will not get interest for your deposit, if you have. So interest on loans is unavoidable in banking function.
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