Moratorium just a deferment; interest payable on delayed installments, says banking exper

Sunil Mehta, CEO of Indian Banks' Association said that the moratorium is only a deferment of the installment and interest accrual will continue during the period of deferment.

“If the 3 installments which are payable during the month of March, April, and May, if they are paid maybe after 5 years as a backend, it will also entail interest cost for the period of 5 years because those 3 EMI installments will have an interest accrued on it. That is why it may not be just 3 EMIs at the end, it may be 4 or 5 depending upon the repayment period available with the individual borrower,” he said.

Mehta further added that those, whose cash flows are not affected, should repay as per schedule. “Those who are in a position to repay, those whose cash flows are not affected, it is advisable for them to continue to repay their installments if they find that they do not have any problem in paying for it. But the particular segment which thinks that they do not have cash flow, then they can defer their installment for 3 months along with the interest and they can plan out its repayment as per their convenience. It can be backended up to the end of their repayment period,” he said.

According to SS Mallikarjuna Rao, MD and CEO,  Punjab National Bank (PNB) if one avails the moratorium, then they should try and front load repayment as soon as cash flow allows. “When you frontend the payment after the problem is resolved instead of waiting at the end, the interest burden automatically gets reduced because interest is applied only on the outstanding in the loan account as on any particular day,” he said.

Mehta also clarified that that moratorium is applicable both, for principle as well as for interest. He further added that it is in customers' best interests to continue paying if they can.