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RBI’s three month loan moratorium for businesses: Should you go for it?

The Reserve Bank of India has announced a three-month suspension of EMI payments for all borrowers, but will it result in any significant gains for you?

In a recent ETRise webinar on the topic, experts were of the opinion that a borrower would need to careful access his financial condition before making a decision and it is very important to read the fine print.

Sanjay Doshi, Partner, Deal Advisory Financial Services, KPMG, India , if you believe there is a cash crunch then you should go for it immediately. “There is no point in waiting because this moratorium is for these three months whether you avail it now or do not. The key element is the moratorium is on the cash flow side so you can delay your repayments by three months, but the interest element continues. You keep on paying the interest on the loan and that is just increasing your debt,” says Doshi.

Alok Mittal, the Co-founder and CFO of Indifi Technologies says it is important to understand that this is not a waiver of interest. The three month moratorium comes at three months of interest on whatever the current principle outstanding might be.

“Different lenders are also looking at ways of realizing the interest. Some are thinking of keeping the loan tenure same and move the payment by three months, which means there will be an increase in the EMI. Many lenders are planning to capitalize this interest, which may translate in to certain additional EMIs to be paid at the end of the loan tenure. Depending on the actual tenure of the loan you can see a few more EMIs being added in the end of the loan tenure,” says Mittal.

Doshi advises that companies should have a proper assessment on the cash flow and carry out scenario testing. “The companies, both small and big, need to work through a couple of scenarios which helps them understand their immediate cash requirement and mid to long term requirements. Based on this they should opt for the moratorium. Just deciding to opt for the moratorium just because it’s available might not be a great idea because you need to factor in the interest on the loan amount and other .ther possibilities. At the same time if you don’t opt for this in these three months you might not get the chance to shift your cashflow for atleast three months,” says Doshi.

Both the panel members in the webinar agreed that businesses and individuals need to look at the cost of going for the moratorium. If the tenure left to service the loan is longer, the moratorium may in fact not be very advantageous. For example, for a loan with a 10 year period, the costs may be much more.