RBI’s Loan Moratorium: Rules for Loan Transfer, Personal loans cases. Read to know more!

As a relief to common consumers / borrowers against the COVID pandemic, the Reserve Bank of India (RBI) had allowed moratorium on term-loan and credit card payments. Those who opted for the same were allowed to defer their Equated Monthly Installments (EMIs) for a brief period which ends on 31st August 2020. Many borrowers specially lower income group and self employed persons reeling under situation created due to pandemic affected economy rushed to avail the same.

Since start of February 2020, RBI had cut repo rates by 115 basis points which had directly impacted lending rates. Public and private sector commercial banks have since passed on the same to the consumers leading to lower interest rates on loans

So it is natural that some borrowers wanted to transfer their loans to a bank offering lower interest rates, than existing lender. Transfer of the loans is also opted by home loan borrowers as there are no prepayment charges and / or the repayment term is substantial enough to save significant interest as a result of lower interest rates being offered by the new bank.

However, this will not be possible for those who already opted for moratorium.

Why is it difficult to transfer loans for those who opted for moratorium?

In normal circumstances, when a borrower opts for moratorium only when his /her ability to pay back the loan has been affected due to business / cash flow issues. The same question will be asked by the bank today, to the borrowers who want to transfer existing loan. The lenders will assume that borrowers who have opted for the moratorium are experiencing cash flow issues. So unless borrowers are able to convince the lenders that their cash flow problems have been resolved, it may be difficult to get a loan transfer done,

Part of due diligence of a transfer loan case is checking the applicant’s ability to pay it back. Satisfactory loan repaying capacity or income source is a requirement for approving loans. And since borrowers have opted for moratorium mostly due to cash flow issues, banks will wait for the moratorium period to get over.

Loan transfers may result in significant saving for borrower. let’s take an example

A borrower has an outstanding loan of ₹50 lakh at an interest rate of 7.4% and the remaining tenure is 15 years. If another lender offers him 50 bps lower interest rates, he will save about ₹2.53 lakh in interest outgo. This is significant saving.

What can borrowers do?

Firstly, there is no legal restrictions preventing those who opted for moratorium from applying for a transfer of loan. However, if a borrower wants to transfer his loan, he may wait for the moratorium period to end and pay regular EMIs for 4-5 months. This will help re-establish repaying capacity of the borrower to the new lender and then it become easier to get loan transferred. 

Personal Loan cases

The RBI has proposed a resolution plan for stressed personal loans. If you are unable to service your personal loan EMI even after August 31, then you can opt for the loan restructuring as per the resolution plan. The resolution plan may vary from individual to individual and from bank to bank. Borrowers have to approach their lender to work out a repayment plan that suits them the most

                                     

But in case of loan restructuring, borrowers have to repay loans but with revised terms as decided by banks. If you go for a restructuring, banks may reduce EMI and increase the loan tenure, or charge interest only for a few months or may reduce loan interest rate to give some relief to the borrower. Borrowers need to talk to their lenders to find out the most suitable solution.