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Why is the Indian government not extending Moratorium? How can middle-class people pay EMI?
The government might have thought that the pandemic
situation will be for a quite short time. So, the RBI permitted moratorium
initially.
A moratorium is a facility allowed to
the borrowers who haven't planned for such eventualities, and they were to be
temporarily relieved from paying EMI without getting the account classified as
NPA and also without affecting the credit score. But it has an inherent cost of
interest for a long period, that is - the EMIs are collected after the expiry
of the full repayment period.
Of course, The pandemic situation is
beyond anyone's control and no one would have expected the impact on the
economic development and loss of income and job.
The benefits or gain to the borrowers is
the only deferment of the EMI for the permitted period but it is not to be
construed as a waiver of EMIs for the period.
It is really serious of course but if
the EMI which comprises interest is not paid what will happen to the bank from
where the borrowers have borrowed the money.
First of all, EMI consists of principal
and interest and it is necessary to know what is the banking function. So that
it can be understood the impact of waiver of the interest on the loan if at all
permitted.
Banks pool the savings from the people
as saving a deposit and fixed deposit, by offering interest at a certain
percentage and the funds raised by the banks are distributed as loans at the
rate of interest slightly higher than the rate of interest payable to the
depositors, to cover the administrative expenses and profit to be paid as a
dividend to the shareholders.
Now let us assume that the interest on
the loans is waived, then how the banks can pay the interest on the deposit. If
the banks pay interest from their own capital then is it possible to survive at
all.
Most of the people deposited money with
the bank, particularly senior citizens, depending on the interest earned on the
deposits for their livelihood. Click here
Extension of the moratorium is the call
of RBI, not Govt. However, RBI should come out with a framework soon. It has
already given a 6-month moratorium. It has already formed a committee to design
restructuring which will give a report soon. Once done you will have relief.
Extension of Moratorium - no CASH with Banks / NBFCs. How
are Banks going to pay for Maturing FDs during the period?
Extension of Moratorium - Does not mean
Interest meter stops. Cumulative Interest Burden will increase.
Makes sense not to Extend Moratorium.
The moratorium cannot be endless. The middle class should factor in the loss of income as one of the risks while
incurring EMI liability.
Don’t pay. If one has
no money even moratorium will not help. Better demand for all loan writes off.
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