Is ‘Disaster Management Act’ related to Extension of Loan Moratorium?

August 28, 2020

The Supreme Court of India asked the central government to clarify its position on the issue of interest being charged on the installment of loan repayments amid the lockdown. Earlier, by mentioning the power of the center under the Disaster Management Act, the apex court had asked the same to review the issue of charging interest on EMIs during the pandemic.

The Act

The Disaster Management Act received the presidential assent in 2005. It has 11 chapters and 79 sections. The objective of the act is the management of disasters effectively and other issues related to the incident.

Background

The Reserve Bank of India announced an extension of the moratorium on term loan EMIs right after the enforcement of pandemic lockdown. Later the term was extended for three more months. That implies the borrowers will not have to pay the installments on loan EMI during the period fixed by the RBI.

The conflict

  • The objective of the moratorium has to be providing relief to the borrowers considering the pandemic situation.
  • The people with income loss will not have to pay the installments on loan EMI.
  • But, once the moratorium is over, they will have to pay all their dues.

The RBI’s declaration about extensions does not ensure any kind of loan waiver. But it could create more financial crunch after the term is over. That means the main sufferer will be those people who availed the moratorium.

RBI estimation: If the Supreme Court of India allows interest waiver in the moratorium, a loss of Rs 2 lakh crore may hit the economy.
RBI requested the apex court to not allow interest waiver in this period.

Experts suggestion

  • There will be no problem for those who did not avail of the moratorium.
  • Restructuring the loan and appealing to the bank for an extension could be a better idea for those who availed the moratorium and are going to face difficulties.
  • Those who have a strong financial strength should opt for a one-time payment.
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