Should the government extend the moratorium on the term loans because many states are still into the lockdown and people are getting affected because of this. On this, let us see what experts have to say.
aj Khosla, Founder and MD, MyMoneyMantra.com
A blanket extension will prove to be detrimental
In the wake of the covid-19 disruptions, the moratorium was necessary and enabled borrowers to reorient to a new reality. But a blanket extension beyond six months will prove counterproductive on many fronts.
If borrowers do not get back to monthly loan servicing, the banks won’t be able to assess portfolio behaviour and, therefore, will be unable to develop appropriate credit policies for incremental lending.
In the absence of fresh credit, there is no start point for a demand lift. Borrowers should be encouraged to look at financial discipline in the eye and honour commitments. Moratorium is not a free source of credit, and this relief isn’t available indefinitely, which means EMIs have to be paid at some point and unpaid EMIs do carry an interest cost.
Mrin Agarwal, Financialeducator, founder-director Finsafe India, and co-founder, Womantra
People need to start repaying EMIs as interest cost will pile up
The moratorium on term loans, which is ending on 31 August, can be extended to companies in stressed sectors such as hospitality and aviation as well as to MSMEs (micro, small and medium enterprises). These sectors are going through some trying times and RBI should allow banks to provide relief to segments based on the bank’s risk perception.
A blanket moratorium may not be required and neither should it be offered to individuals, given the declining trend seen in the uptake of moratorium in the second phase.
Borrowers, however, need to remember that availing of the RBI loan moratorium means their interest costs will go up further. Thus, it is recommended to make repayments as and when liquidity is available.
With the covid-19 situation not getting better, borrowers will continue to face cash flow issues and, hence, the provisioning made by the lenders needs to be carefully scrutinized, as there is a risk of these loans turning into non-performing assets (NPAs).