With the nationwide lockdown and further possibility of increase in the lockdown period in Indore to fight COVID-19, the economy has taken a backseat. While some groups of professionals working from home, house help, etc. will still get paid for the lockdown period, the struggle is massive for small and medium scale industries.
Reserve Bank of India has given a small relief in the form of ‘RBI Relief Package’, which can help the common man.
Discussing the same, financial consultant Prakalp M Jain, having experience of working with State Bank of India, decodes the benefits that people can render from the package.
Ques: What are key points of the RBI Relief Package?
Jain: There are three main key relief points offered in the package: Moratorium on Term Loan repayment, Deferment of Interest on Working Capital Facilities and Relief of Credit Card payments.
Ques: Can we skip paying interest for the period?
Jain: No. You must note that this extension of term loan obligations is merely granting of the extra period and in no way should be treated as waiver of interest and/or principal due for this period. RBI has not fixed a formula to recover the additional interest accrued for these three months. So, depending on how your Bank deems fit, it can present you with a formula of either increasing the balance tenor by more than three months keeping the EMI as same or may also offer you the choice to extend the tenor only by three months and marginally increasing the EMI to recover the due interest of this period.
Ques: What is deferment of interest on working capital facility?
Jain: As per this facility, in these three months you will not have to pay any interest on these facilities. But the interest of these three months will be charged and collected from you in the fourth month. Further, RBI has also permitted banks to consider allowing higher drawing power by considering lower margins if the borrower's business so requires. This will also ensure availability of marginally higher usable funds to the borrower during this three months period to ease out liquidity crunch.
Ques: What is the relief on credit card payment? Is it suggested to use this facility?
Jain: RBI has allowed all the credit card companies to permit three months moratorium on credit card bills as well, meaning that you can very well choose not to pay your credit card bills generated between 1st March to 30th May by informing in writing to your credit card issuer and for which no late payment fee, penalty etc. will be levied.
But wait before deciding not to pay and keep in mind that if you don't pay your bills for these 3 months, interest will be charged by your company for this three months period and the same interest will have to be paid later in 4th month. Now, generally, the credit card companies charge interest at a higher rate of 2.50% to 3.50% per month (after the credit-free period) which is huge. So if you don't want to pay interest at these higher rates, it is suggested that you pay your credit card dues on a regular basis without availing any extra period.
Ques: Will this 3-month period affect my credit score?
Jain: While making a way for a moratorium of three months period, the RBI has ensured that your credit score will not be affected adversely even if you avail this three-month extension facility for a Term loan, working capital, credit card, home loan etc.
Ques: Will we get this three months moratorium on home loan account?
Jain: Since the home loan is a type of Term Loan only, this relief facility is sure to be available on the home loan as well.
Ques: How can we get the relief package?
Jain: It is not that you will be able to avail these reliefs announced by the Reserve Bank under some automatic process. Based on the guidelines issued by the Reserve Bank, all banks and lending financial institutions have been advised to make their own policies and procedures, under which you will be able to get these benefits by applying to your respective Bank. Each bank will issue its procedure in this regard soon and thus, you are required to keep in touch with your Lender through its branch, online website, Application etc.