" Moratorium Imposed by the Government and its impact on the General public "


  • CA Advocate CS
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Loan Moratorium Impact of Moratorium Extension of Moratorium Period

The Covid 19 pandemic has not only affected the health of the people at large but also their wealth. The country has suffered many losses during the lockdown period with a major impact on the economic sector. The government has thus taken a lot of measures to control the growing harmful effect of the lockdown on the common man.

The finance minister of our country has introduced a moratorium among many of the other measures that had been taken in order to make the life of the people a little easy in such harsh times. The moratorium was first introduced on 27th March 2020 and was further extended since the lockdown was extended beyond foreseeable measures.

What is Moratorium?

The moratorium imposed by the government is a simple act of postponing the payment of interest on the loan amount, taxes pursuant to assessment proceedings, and imposing any penalties on delayed payments by the customers. We can even include legal actions in the moratorium period. This temporary suspension is usually done in order to reduce the burden of the individual. One of the most important things that need to be kept in mind is the moratorium period is temporary deference and should not be confused with a waiver.

Extension of Moratorium period

The Reserve Bank of India introduced the moratorium period first time on 27th March 2020 for a period of three months, i.e. till 31st May 2020. But seeing the ongoing struggle of the general public the RBI extended this period by another three months that would extend up to 31st August 2020.

At the end of this six month period, many people felt the need for another extension of six months and thus requested the government to extend the moratorium period till 31st December 2020.

The Supreme court of India said on 10th September 2020 that it is willing to hear the matter on the further extension of the moratorium period and pass an interim order. But since, the government did not come up with a concrete plan the hearing was deferred till 5th October 2020. During this hearing, the center said that they are willing to provide relief from the payment of Compound Interest to the small borrowers whose loan amounts to Rs. 2 crores. Though this affidavit filed by the Centre was not any sector-specific.

The RBI informed the Apex Court that the government has agreed to waive off the compound interest for the loan amount of Rs. 2 crores for the moratorium period of six months. Thus the Supreme Court of India passed an interim order on 14th October 2020 but asked the Centre to come up with an action appropriate plan soon. 

Impact of the Moratorium

1.      The first and the foremost advantage of this moratorium period levied is that the borrowers now have an extra period of three months to repay their EMI on their loan amount.

2.      When you opt to take advantage of the moratorium period, one of the disadvantages of the fact is that you end up paying a higher amount. Since the interest continues to accrue on your loan amount and thus even though you aren’t under any obligation to pay right at the moment you eventually end up paying more.

3.      Opting for the moratorium does not affect your credit score nor will any penalty be levied on you.

4.      In case a person has multiple loans, they can then enquire with their banks in order to know the facility they provide with the moratorium period. However, the general notion is that the moratorium is applicable to all the loans an individual has taken.

5.      The moratorium is available even to the NRI customers.

6.      In the guideline issued by the Reserve Bank of India, they have opted for the term “permitted” rather than direction thus it is advisable for the customers to approach their respective banks and request them to issue them the moratorium period.

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