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The Covid-19 relief package announced by the government last week of March is a welcome move. The RBI has left the implementation of the relief package to the banks, so the nitty gritty of the exemption from payments, the accrual of interest arrears and the eligibility assessment may differ across lenders.
Each bank will decide how to carry out the various measures of the relief package on its own. People have a lot of misconceptions about what has been promised. Keep these things in mind when you make financial decisions basis the announcements in the relief package.
Moratorium is for payment of EMIs, not on interest: Under the relief package, the government has instructed banks to give borrowers a grace period of three months for payment of EMIs. If you have a loan going, you need not pay the EMI for March, April and May. However, this does not mean that three months’ EMI have been waived. It is only a grace period, not a waiver of the loan. Also, the banks are likely to charge interest for three months on the unpaid amount. However, these decisions could vary across individual lenders. Some may choose to extend the loan tenure. Others may seek a bullet payment in June or hike the EMI from June onwards.
Credit card balance: The accrual of interest gets tricky in case of credit cards. The dues payable on credit cards will also get a three month grace period, but the interest cost of this deferment could well be astronomical. In normal times, one can defer a payment by paying 5% of the due amount while the unpaid amount is carried forward to the next billing cycle and charged 2-4% interest. Under the relief package, if you don’t pay for three months and the bank decides to charge as it normally does, the cumulative interest could be prohibitive at more than 6-12%. What’s more, additional spends would also accrue interest from the very first day and you might end up with hefty interest costs.
Grace period is for everybody: If you do not pay by due date, the bank will automatically give a grace period to the payment. At the same time, if there is ECS mandate for the EMI and there is enough balance in the account, the bank will debit the account on the due date. So you will need to inform your bank about your inability to pay. However, if you have ample liquidity and don’t want to unnecessarily incur interest costs, make sure your payment reaches your bank by the due date.
No impact on credit score: If you miss a credit card payment or an EMI, it shows up as a black mark on your credit score and jeopardises your ability to access credit in future. But under the Covid relief package, your credit history will not get blemished by non-payment and your credit score will not be impacted. This should come as a big relief for self-employed people who could be under extreme financial stress due to the lockdown.
Tax saving investments: Apart from the relief package, the government has also extended the last date of filing belated tax returns for 2018-19 and the deadline for tax saving investments for 2019-20 to 30 June. If you have not completed your 2019-20 tax planning till now, here is your chance to save tax.
