Accountancy Assignment

ACCOUNTANCY
ASSIGNMENT
---FINANCE IS A LIFELINE OF ECONOMY---
TOPIC:"DEFERRED EMI"( Impact of the

government decision on Customers and financial
institutions'.)
Batch-(2018-2021)
Under the guidance of- Mrs. Shalini Mittal
SUBMITTED BY – Radhika Agrawal (2018009584)
B.A APPLIED ECONOMICS (hons.)

Introduction
An equated monthly installment (EMI) is a fixed payment amount
made by a borrower to a lender at a specified date each calendar
month. Equated monthly installments are used to pay off both
interest and principal each month so that over a specified number
of years, the loan is paid off in full. With most common types of
loans—such as real estate mortgages, auto loans, and student
loans—the borrower makes fixed periodic payments to the lender
over the course of several years with the goal of retiring the loan.
The Emi moratorium by RBI was:
1. Three months moratorium on loans by RBI means that borrowers
can skip their monthly instalments which are due from 1 March
2020 to 31 May 2020.
2. It includes all loans including home loan, personal loans,

education loan, auto loan, working capital loan, credit card dues
etc.
3. Interest is not waived off and will continue to accrue on the

outstanding amount.
4. Borrower will have to pay additional interest for three months by

either increasing the amount per install.
5. This deferment will not result in negative impact on credit score

for individuals or credit downgrade or default for corporates.
HOW HAS EMI DIFFERED IN INDIA DUE TO COVID-19?
Prima facie, the three-month moratorium on repayment of term

loans by borrowers means that they would not have to pay the loan
EMI instalments during the moratorium period. Going by the
Reserve Bank of India (RBI) statement, availing such a moratorium
would also not lead to a down grading of the borrower's credit rating
or affect the risk classification of the loan. Further, availing the
moratorium will not entail any change in the existing terms and
conditions of the loan. If the existing terms and conditions of the
loan contain conditions/charges related to a moratorium then these
may apply depending on the moratorium policy adopted by the
lending institution. As per the RBI, repayment of credit card dues
can also be deferred under the moratorium mechanism. Under
normal circumstances if loan repayment is deferred then the
borrower's credit history and risk classification of the loan can be
adversely impacted. However, in case of this moratorium the
borrower's credit rating will not be impacted in any way, as per the
central bank statement. The RBI in a circular issued later clarified
the following: Interest shall continue to accrue on the outstanding
portion of the term loans during the moratorium period. Deferred
instalments under the moratorium will include the following
payments falling due from March 1, 2020 to May 31, 2020: (i)
principal and/or interest components; (ii) bullet repayments; (iii)
Equated Monthly instalments; (iv) credit card dues.
The Reserve Bank of India (RBI) in a press conference dated
March 27, 2020 announced that all banks and NBFCs have been
permitted to allow a moratorium of 3 months on repayment of term
loans outstanding on March 1, 2020.The above interpretation is
based on the RBI's intention as spelt out in the statement today.
However, actual conditions of moratorium may vary depending on
how different banks implement it. It is also not clear whether
borrowers will have to pay any interest on the loan at a later date
for the 3 month moratorium period. Normally, simple interest is
payable on a loan during a moratorium period.The RBI in its
statement said, "All commercial banks (including regional rural
banks, small finance banks and local area banks), co-operative
banks, all -India Financial Institutions, and NBFCs (including
housing finance companies and micro-finance institutions) ("lending
institutions") are being permitted to allow a moratorium of three
months on payment of instalments in respect of all term loans
outstanding as on March 1, 2020. Accordingly, the repayment
schedule and all subsequent due dates, as also the tenor for such
loans, may be shifted across the board by three months. "
IMPACT ON CUSTOMER
Due to economic disruptions caused by the nationwide lockdown which
has led to stress in the financial position of borrowers due to cash flow
mismatches, so this will give them a short term relief, but in the long run
’, it results in an overall increment in the total payable amount by the
borrowers to the banks or other financial institutions. People with older
loans taken 10-15 years ago will not feel the burden as much as someone
with a new loan taken 2-3 years ago. Ironically, people with older loans
may not really need the moratorium as much as those with younger
loans.
 A Welcoming & Temporal Relief i.e., their names will not come
under defaulter lists & they cannot be charged any fee or penalty.
 No one is excused with term loans it is just postponed everyone has
to pay it like – if you have taken loan for 20 years then you have to
adjust the amount or you can extend the tenor for 20 years and
3months.
 Deferred EMI is automatic i.e., no individual has to apply for it.
 All term-loans are whether they are for personal use or business are
covered under these three months of deferment.
 Customer can choose not to pay the monthly installments for these
months. The facility is also applicable for credit card dues. Opting for
the moratorium is not mandatory for borrowers who can continue to
pay their equated monthly installments (EMIs).
 It will not impact the credit score since banks are not going to be
allowed to classify the loan as a non-performing asset (NPA). Banks
will not be able to report any default on this count to the credit
bureaus.
 EMIs are not being waived , the amount has to be paid later, after the
moratorium is lifted. The interest accumulated in these three months
will be added to the principal. As a result of not paying the EMI for
three months, the tenure of the residual EMIs will increase.
Alternatively, customers can opt to increase the amount of EMI while
keeping the tenure intact.
 The burden will be higher if a customer is at the beginning of the loan
cycle since the principal outstanding is higher and vice- versa.
 The Indian Banks’ Association has clarified that customers should
not get upset with collection agents or bank staff but explain to them
that they have opted for the benefit being extended under a regulatory
package.
 If the EMI for March is already paid then Customers need to inform
the lender about it and seek reversal of the EMI. Alternatively, they
can opt for a moratorium on the next two months (April and May).
IMPACT ON FINANCIAL INSTITUTION
As soon as the moratorium period begins, the banks & other financial
institutions will start calculating the interest on Simple Interest basis ("All
you wanted to know about moratorium period", 2020). This interest will
be accumulated until the moratorium period ends. Now, the interest
accumulated during the moratorium period gets added with the rest of
the EMI dues and results in increased overall payment in the ‘long term’.
While the banks & other financial institutions enjoy an increased overall
repayment amount in the long run, in the ‘short term’ period they suffer
to collect their main source of income, i.e. interest payment on loans.
Which not only handicaps their ability to credit more loans but also,
become unsuccessful to function and run since it would be unable to pay
its employees, pay for its operational costs & other related costs.
 The Salary/Wages of employer’s will be paid but in a certain amount
due to this grace period.
 No tax will be received for this 3months.
 Can have more liquidation and can take loan at a lower rate of
interest.
 Will continue receive the credit card, EMI, retail loan installments if
the individuals are not financially strained due to the ongoing Covid-
19 lockdown.
 For high-ticket loans like home or vehicle loans, not paying the
monthly dues for the next three months could increase the amount of
interest significantly.
 Bank will not report defaults on such loans to credit score authorities
for the next three months.
 Credit cards holders will be charged a much higher interest rate than
other lending instruments.
 Loans as also the residual tenor will be shifted across the board by
three months after the moratorium period. Interest shall continue to
accrue on the outstanding portion of the term loans during the
moratorium period.
REFRENCES:
 https://economictimes.indiatimes.com/wealth/borrow/5-things-to-know-about-3-month-emi-moratorium-
offer-by-rbi/articleshow/75094300.cms
 https://economictimes.indiatimes.com/wealth/borrow/lending-institutions-to-allow-3-month-moratorium-on-
all-term-loans/articleshow/74840850.cms?from=mdr
 https://www.investopedia.com/terms/e/equated_monthly_installment.asp
 https://www.technofino.in/moratorium-..
 https://www.thehindubusinessline.com/opinion/columns/slate/all-you-wanted-to-knowaboutmoratorium-
period/article31210477.ece

Accountancy Assignment

Uploaded by

Copyright:

Available Formats

Accountancy Assignment

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Accountancy Assignment

Uploaded by

Copyright:

Available Formats

ACCOUNTANCY

TOPIC:"DEFERRED EMI"( Impact of the

Under the guidance of- Mrs. Shalini Mittal

SUBMITTED BY – Radhika Agrawal (2018009584)

B.A APPLIED ECONOMICS (hons.)

2. It includes all loans including home loan, personal loans,

3. Interest is not waived off and will continue to accrue on the

4. Borrower will have to pay additional interest for three months by

5. This deferment will not result in negative impact on credit score

Prima facie, the three-month moratorium on repayment of term

You might also like