InvestorQ : Why is RBI averse to extending the EMI moratorium?
Anjana Aiyar made post

Why is RBI averse to extending the EMI moratorium?

Khushi Patel answered.
2 years ago

The RBI has told the Supreme Court that any waiver of interest on interest would entail huge economic costs. Most banks cannot afford the cost and hence the government may have to chip in, and the government itself is in a tight financial ship.

The government has already agreed to bear the interest on interest cost for personal loans and MSME loans up to Rs.2 crore. However, the RBI in its deposition before the SC has pointed out that any moratorium beyond 6 months will impact credit behaviour of borrowers.

According to the RBI, such a move could seriously vitiate the credit discipline in the economy which could have long term repercussions for credit culture. According to RBI, ironically it would be the small borrower bearing the brunt as their access to formal lending gets constrained.

RBI has also asked the SC to strike down any plea to stop classifying as NPAs as that would also impact the credit culture in the economy. It would also hit the banking system and be credit negative for the Indian banks.

The Supreme Court is scheduled to hear the matter on Tuesday, October 13. That would be the day when the final decision on the subject will be taken.