Rate reductions and a three-month EMI moratorium come as big relief for borrowers in the time of coronavirus.

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There is relief for retail borrowers with home, auto and personal loans. The Reserve Bank of India (RBI) has reduced its repo rate by a massive 75 basis points (bps). This will bring down interest rates for borrowers, once banks pass on the policy rate cuts. In addition, RBI governor Shaktikanta Das, in a statement, permitted banks to allow a moratorium of three months on equated monthly instalment (EMI) payments.

I am servicing a home loan. Will I benefit from the rate cut?

If you have a repo-rate home loan, then today’s 75-bps rate cut will result in a significant reduction in your interest outgo over the tenure of the loan. A basis point is 0.01 percentage point.

For example, in this scenario, a borrower with a Rs 50-lakh outstanding home loan carrying an interest rate of 8 per cent annum and balance tenure of 15 years will see her EMI shrink by Rs 2,139.

Banks typically don’t pass on rate cuts to consumers. What should I do?

All new retail floating-rate loans given after October 1, 2019 are linked to an external benchmark. Most banks have chosen the Repo Rate as their benchmark. Therefore, banks have no choice but to pass on the entire rate cut to borrowers. This could come through as soon as in April. Even if you are servicing loans linked to the marginal cost of funds-based lending rate (MCLR), you are likely to see your rates go down in line with the banks’ cost of funds. If your bank does not transmit the policy action entirely, you should look to switch to repo rate-linked home loans, even if it means paying a one-time administration fee.

How soon will my bank reduce my home loan rates?

Check the terms of your loan the reset period in the list of clauses. Typically, for repo-rate loans, this is once in three months. So, if your last reset date on your repo-rate loan was, say, January 1, 2020, then you are due for the reset rate in April. Rest assured, the rate transmission – or the benefit of lower interest rates being passed on to you, the borrower – happens pretty soon in such loans.

I have taken a loan from a housing finance company. Can I also insist on switching to a repo-rate linked home loan?

No. The external benchmarking regime is applicable only to banks. However, the competition in the system is expected to ensure that housing finance companies pass on the benefits to you, in line with what banks offer.

If I have taken a home, auto loan or education loan, will I be eligible for the moratorium?

Yes, as RBI has clarified that the permission to allow a three-month moratorium is applicable to all term loans. The modalities and procedures to seek the moratorium will be announced by banks.

What exactly is a moratorium? Can I now afford to skip my EMIs?

A moratorium is a temporary relief given to tide over a crisis situation. Due to the economic slowdown, a fallout of the ongoing Covid-19 pandemic, our income might go down. To tide over this crisis, the RBI today announced a moratorium of three months for all term loan borrowers. A term loan here means all those loans – whether taken by retail or corporate borrowers – will get a relief from paying their EMIs for three months. So, till May 2020, even if you do not pay your EMI, it will not be treated as a default. Your credit score will not be affected adversely either.

But this does not mean that you do not have to repay your loan. A moratorium means that you can postpone your loan payments. The tenure of your loan will get extended. Your next three months’ EMIs will get pushed back. But you will have to pay your entire loan in the future.

Will I be able to seek moratorium for my credit card outstanding too?

Yes. Credit cards too are included in the moratorium.

Are other loans also eligible for the moratorium?

Yes, all term loans are eligible. Education loans and personal loans too are eligible for this three-month moratorium. What’s more, you may have borrowed from non-banking finance companies, housing finance companies and even small finance banks; all borrowers from all such institutions are eligible for the three-month moratorium.