journal of interdisciplinary cycle research issn no:...

Decoding Moratorium -A temporary financial relief by the banks

Co-author

Mr.Anish Patnaik

Student

The Institute of Chartered

Accountants of India

Bhubaneswar, Odisha, India

Odisha

Email-

[email protected]

Co-author

Mr. Subham Patnaik

Student

The Institute of Cost Accountant of

India

Bhubaneswar, Odisha, India

Email-

[email protected]

Co-author

Mr. Ansh Patnaik

Student

VEM School

Chandrasekharpur

Bhubaneswar, Odisha,

India

Abstract

With the country being in lockdown to contain the spread of Covid-19, the Reserve Bank of

India had announced some of the supportive measures very recently , to tide over the economic

fallouts. Among other measures, one measure that has brought a lot of cheer is the RBI allowing

banks to grant a three months moratorium to their borrowers for term loans outstanding as on

March 1, 2020. In this context we have tried to introspect the various issues related to customers

and bankers point of view. The present study is restricted to the customers who availed the

moratorium. This includes Lower Income Group (LIG), Middle Income Group (MIG) and

Higher Income Group (HIG). For this purpose we have conducted 6 core group discussions

consisting of 10 members in each group for finalizing the various variables over telephonic

conferencing and video meetings. Initially 16 variables were identified but after compilation of

the findings of core group discussions the attributes are restricted to 12 only. 5 point likert score

method has been used for collecting and analysis of data for reaching out more and more readers

and scholars.

Key words- Moratorium, LIG, MIG and HIG

An overview

A moratorium period, the technical term for a repayment holiday, is basically a length of time

during which a borrower gets time-off from his or her loan repayments. That is, you as a

borrower need not pay your instalments or interest dues if you are granted a moratorium. As per

RBI’s announcement, borrowers stand to get a repayment holiday from loan dues for three

months from March 1 to May 31, 2020. The RBI has allowed banks and other lenders to decide

Journal of Interdisciplinary Cycle Research

Volume XII, Issue V, May/2020

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how they will structure this deferment. This includes all kinds of loans including personal and

credit card dues.

Moratorium period effectively allows a borrower to postpone repayment of liabilities and helps

in planning his/her finances better. As a practice, banks and other financial institutions offer

moratoriums to students taking education loans. As there might be a time lag between students

completing their studies and getting a job, student loans usually have a built-in provision for

repayment holiday. Similarly, some lenders offer moratoriums on home loans as well. For

instance, SBI’s flexi home loan allows customer to pay only interest in the initial 3-5 years, after

which flexible EMI payments begin. But in the current situation, banks are allowed to offer

moratoriums on all kinds of loans for three months, without any such delay or default counted as

a default or bad loan. Similarly, if you are running a business, in respect of working capital

facilities, lending institutions are permitted to defer the recovery of interest applied (cash

credit/overdraft) for this moratorium period. While such repayment holidays are offered to give

relief to the borrower, they come with a downside as well. Let’s consider the case of the current

moratorium. While borrowers are not required to pay EMIs or interest till the end of moratorium

period, the interest will continue to accrue on their loan amounts. Effectively, folks who avail of

the moratorium will end up paying extra interest to the bank.

Three-month moratorium on EMI payments offered by banks is unlikely to bring much relief to

borrowers hit by COVID-19 lockdowns as they will have to bear the extra cost of interest

charged by lenders and a longer repayment period, according to experts. Experts feel that the

three-month moratorium on repayment on loans to help people fight the impact of coronavirus

seems to be benefiting banks rather than borrowers as they will have to pay accumulated interest

through increased number of EMIs. It is an expensive proposition for any borrower to opt for

three-month suspension as announced by the RBI under the relief measures to mitigate the

hardship of those hit by the outbreak of COVID-19 pandemic.

Explaining the financial burden with the help of an example, SBI said for a home loan of Rs 30

lakh with a remaining maturity of 15 years, the net additional interest would be approx Rs 2.34

lakh equal to eight EMIs for those borrowers who opt for the moratorium. "For an auto loan of



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Rs 6 lakh with a remaining maturity of 54 months the additional interest payable would be Rs

19,000 approx equal to additional 1.5 EMIs".

Objective of the study:-

To understand the various internal dynamics associated with the moratorium

To provide suggestive measures based on findings of the study.

Scope of the study:-

The study is conducted among the various Lower Income Group (LIG), Middle Income Group

(MIG) and Higher Income Group (HIG) members. For the purpose of categorization, for the LIG,

the income that we considered is below Rs5 lakh, for MIG the income range considered is

between 5-20 lakhs and for the HIG more than 20 lakhs. The categorization is being made,

based on the conclusions and suggestions made by the majority of core group members. It

includes 38 members from LIG, 41 from MIG and 36 from HIG category. Due care has been taken

to include only those members who availed moratorium on various loans . Those who did not

avail this benefit are not included in the scope of the study.

Methodology of the study:-

For the purpose of the study, questionnaires are distributed and the sampling technique

followed is snowball and cluster both.

For the finalization of various attributes 6 core group discussions were carried out

consisting of 10 members in each group who had availed the moratorium. Based on the

consensus the variables are finalized.

Initially 16 variables were identified but after the core group compilation of data, 12

variables are finalized for the purpose of the study.

Sample size is 115. Data is collected over telephone and video conferencing and by

maintaining social distance as per the government direction.

Period of study is 2 months i.e March to April 2020

5 point likert score method has been used for the collection and analysis of data.

Analysis of Data

Table-1: Computation of respondents’ perception: Ideal score and least score

Category Equation Ideal score Equation Least score

LIG (12 X38X3) 1368 (12X38 X-1) -456

MIG (12X41X3) 1476 (12X41X-1) -492

HIG (12X36X3) 1296 (12X36X-1) -432



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LIG- Lower Income Group, MIG- Middle Income Group, HIG- Higher Income Group

Table-2: Findings of the study

Variables / attributes Aggregate score

LIG MIG HIG

Banker Centric

Less cash inflow 80 88 96

Difficulties in cash management 71 87 82

Scope of more NPAs due to deterioration of

economic conditions

100 98 90

More earning of interest due to longer

EMIs.

109 119 94

Customer Centric

Temporary relief 103 113 88

Postponement of EMI 94 104 93

Managing working capital requirement 91 102 86

Possible to save some amount due to

nonpayment of EMIs in some cases

73 74 68

Reduces financial stress 81 100 102

Act as short term finance 79 96 100

More interest payment 109 111 105

Longer period of EMI 108 116 101

Total score 1098 (80.26) 1208 (81.84) 1105 (85.26)

Ideal score 1368 1476 1296

Least score -456 -492 -432

No of respondents 38 41 36

Source- Annexure- A, B and C

Interpretation:

In case of LIG respondents, from the banker centric perspective, most of the people felt that there is

more scope for NPA, more earnings from interests for banks due to longer EMI. Similarly temporary

relief, more interest payment and longer period of EMI have more support than other variables ,when

seen from the customer’s point of view.

In case of MIG respondents , from the bankers perspective more support is seen for scope of increased

NPA and more interest for banks. Similarly from customer centric view, temporary relief, postponement

of EMI, manage working capital requirement, reduces the financial stress, more interest payment and

longer period of EMI.

In case of HIG, more support for reduces financial stress, acts as short term finance, more interest

payment and longer period of EMI.

In overall, the actual total scores are positive in all the cases no where it touches or nears the least

score. The actual scores for LIG,MIG and HIG being 80.26%, 81.84% and 85.26% respectively. The



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average actual scores being 82.45%. This concludes that all the variables considered after the core

group discussions are relevant for the study.

0

20

40

60

80

100

120

Score for LIG-Chart-1

Score for LIG

020406080

100120140

Score for MIG- Chart-2

Score for MIG



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Concluding Note

Moratorium is the timely initiative by the RBI to overcome the immediate crisis. This is only

postponement of financial obligations for the time being. It is extension of time period of loan. During

this period the interest portion on the loan amount will not be waived off and will be carried forward

and included in the capital amount and ultimately this will lead to extension of EMI amount for some

further period. It is observed that 25% to 35% of the loan amount is used for moratorium. In this regard

0

20

40

60

80

100

120

Score for HIG- Chart-3

score for HIG

-1000

-500

0

500

1000

1500

2000

Chart-4:Overall Score

Total score Ideal score Least score



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the customer is given an option to avail moratorium or opt for payment of regular amount without

derailing the EMI amount. In case of lower income group and middle income group, people have availed

this facility due to loss of jobs and decline in regular income. In some cases the salary deduction ranging

between 30%-50% has led to deferring the EMI amount. No doubt the customer will have to pay

additional cost for holding the longer period of loan but it has acted like oxygen for most of the people

who are under the ventilator due to COVID 19. Of course, the perception differs from person to person

about the pros and cons of the moratorium. Being a scholar we respect all the views expressed by the

respondents.

References

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=15&cad=rja&uact=8&ve

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0f8cefeb70df&usg=AOvVaw3yn-ZfVivs1TB95io5EE3R


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d=2ahUKEwiSmPrjprHpAhUGH7cAHbwkDnIQFjAJegQIBBAB&url=https%3A%2F%2Fwww.rbi.org.i

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Annexure-A

Variables Opinion of Lower Income Group (LIG) -38

CA A N DA CDA Score

3 2 1 0 -1

Banker Centric

Less cash inflow 23 5 4 3 3 80

Difficulties in cash

management

20 6 3 5 4 71

Scope of more NPAs due to

deterioration of economic

conditions

32 2 1 2 1 100

More earning of interest due

to longer EMIs.

33 5 0 0 0 109

Customer Centric

Temporary relief 33 2 1 1 1 103

Postponement of EMI 29 3 2 3 1 94

Manage working capital

requirement

27 5 2 2 2 91

Possible to save some

amount due to nonpayment

of EMIs in some cases

15 12 6 3 2 73

Reduces financial stress 21 8 4 3 2 81

Act as short term finance 23 5 3 4 3 79

More interest payment 34 3 1 0 0 109

Longer period of EMI 35 1 1 1 0 108

Source: Compiled from field survey, CA-Completely Agree, A- Agree, N- Neutral, DA-

Disagree, CDA- Completely Disagree

Annexure-B

Variables Opinion of Middle Income Group (MIG)-41

CA A N DA CDA Score

3 2 1 0 -1

Banker Centric



management

24 6 5 4 2 87



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conditions

29 5 3 2 2 98


to longer EMIs.

37 4 0 0 0 119

Customer Centric




requirement

31 4 2 3 1 102



of EMIs in some cases

14 12 10 3 2 74







Annexure-C

Variables Opinion of Higher Income Group (HIG)-36

CA A N DA CDA Score

3 2 1 0 -1

Banker Centric



management

25 4 2 2 3 82



conditions

28 2 3 2 1 90


to longer EMIs.

29 2 3 2 0 94

Customer Centric




requirement

26 4 2 2 2 86



of EMIs

15 10 5 4 2 68







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