EMI deferment to put additional interest cost on borrowers, warns SBI

The country's largest lender State Bank of India on Wednesday warned borrowers that deferment of equated monthly instalments (EMIs) offered under the RBI's relief package on account of COVID-19 could put an additional cost on them.

The lender also advised borrowers to repay their loans if they are in a position to do the same.

Last week, the Reserve Bank of India (RBI) gave a relief package for retail borrowers and businesses, by way of announcing a three-month moratorium on payment of all term loans falling due between March 1, 2020, and May 31, 2020.

The dispensation is aimed to mitigate the burden of debt servicing brought about by disruptions on account of COVID 19 pandemic and to ensure the continuity of viable businesses. “Any deferment of interest over such a long period, if it is there, will entail additional costs because it is not interest waiver, it is interest deferment,” SBI managing director (retail and digital banking) C S Setty told reporters through a video conference.

In a frequently asked questions (FAQ) section on Covid 19 relief measures published on its website, the bank said during the moratorium period, interest shall continue to accrue on the outstanding portion of the term loan.

Explaining about the impact on home loan, the bank said for a loan of Rs 30 lakh with a remaining maturity of 15 years, the net additional interest would be nearly Rs 2.34 lakh which is equal to eight EMIs.

For auto loan of Rs 6 lakh with a remaining maturity of 54 months, the additional interest payable would be around Rs 19,000 equal to additional 1.5 EMIs, the bank said. To avoid paying this additional cost, Setty said the bank is advising its customers to pay their EMIs, if they have the ability and cash flow to pay. “But important thing is if you want additional cash flow, you avail this facility, and it costs you,” he said. Setty explained that the bank will back end all the three monthly instalments or any instalments failing under the moratorium period towards the end of the loan repayment period.

He also said the bank is offering an option to its retail and corporate borrowers to get refunded the already deducted equated monthly instalments for March, if they opt for it.

“So, we have given this provision of claiming back the amount (EMI) which has already been paid for March,” Setty said.

He said a customer who has a loan account and a savings account with SBI, and has given a standing instructions for deducting the EMI from his account, can send an email to the bank asking for refund.

“We will ensure that whatever amount which is recovered for March, will be credited to your savings account,” he said.

For a customer who has a loan account with SBI but a savings bank account with another lender, the refund may take some time as the bank will need the details from the customer about the account where he wants the deducted EMIs to be credited, Setty said.

He further said the bank has enough liquidity and deferment of EMIs will not create any additional liquidity pressure.