The word moratorium comes from the Latin word morari, which means to delay. In finance, it is an agreed or official break from paying back a loan, and the pause itself is called the moratorium period. While it lasts, the borrower does not pay the EMI (equated monthly instalment, the fixed amount paid to the lender every month). The missed instalments are not treated as a default, which means a failure to repay on time.
Moratoriums show up in several places in Indian finance. Banks build one into education loans, so a student pays nothing while still studying. The Reserve Bank of India (RBI), the country’s central bank, let lenders offer a loan moratorium on term loans (loans repaid in fixed instalments) between March and August 2020 because of COVID-19. A third kind sits in the Insolvency and Bankruptcy Code (IBC), where it stops creditors, the people a company owes money to, from chasing the company while a rescue plan is worked out.
Did You Know?
Under the RBI’s 2020 scheme, a ₹1,00,000 loan at 12% a year picked up ₹3,030.10 of extra interest over a three-month moratorium if the interest was not paid monthly, according to a Press Information Bureau FAQ on the scheme.
How Does Moratorium Work?
A moratorium changes when you pay, not whether you pay. Here is the usual sequence.
- The pause is set. The terms come from your loan agreement, an RBI notification or an order under the IBC. The start date and length are fixed up front.
- Instalments stop. No EMI is due during the moratorium period. In some loans, you may be asked to pay only the interest.
- Interest keeps building up. The lender still charges interest on the outstanding amount, which is the part of the loan you have not yet repaid. Some education loans charge simple interest (interest only on the original loan amount) during the pause and then add monthly compounding (interest on interest) afterwards, as in Bank of Maharashtra’s model education loan scheme.
- Repayment restarts. When the pause ends, EMIs begin again. Either the EMI goes up, or the loan tenure (the number of months left) gets longer to cover the unpaid interest. Under the 2020 RBI scheme, the repayment schedule and tenure were pushed back by the length of the pause, as explained in the PIB FAQ.
Pro Tip:
If you can afford it, pay at least the monthly interest during the pause. That stops the loan balance from growing.
Example of Moratorium with Real Numbers
Imagine Rohan, a 24-year-old from Pune, takes an education loan for a two-year MBA. His lender gives a moratorium that covers the course plus one year after it. To keep the maths simple, assume the full amount is paid out on day one and the unpaid interest is added to the loan when EMIs begin.
Given: • Loan amount: ₹10,00,000 • Interest rate: 10% a year, simple interest during the moratorium • Moratorium: 3 years (2-year course plus 1 year) Calculation: Interest = ₹10,00,000 × 10% × 3 years = ₹3,00,000 Amount owed when EMIs begin = ₹10,00,000 + ₹3,00,000 = ₹13,00,000 This means Rohan starts repayment owing ₹13,00,000, not ₹10,00,000. If his family pays the interest of about ₹8,333 a month during the pause, the balance stays at ₹10,00,000. |
Now see what it does to the EMI. Over 7 years at 10% a year, the EMI on ₹10,00,000 would be about ₹16,601. On ₹13,00,000, it is about ₹21,582, which is ₹4,981 more every month. Real education loans are usually paid out in stages, so the actual interest is often lower. Treat these numbers as an illustration.
Types of Moratorium
Not every moratorium works the same way. These are the four you are most likely to meet in India.
Education loan moratorium
This is the one most Indian families meet first. The lender pauses EMIs while the student studies, and for some time after, so there is time to find a job. It is usually the course period plus six to twelve months, depending on the lender. Bank of Maharashtra’s model scheme, for example, gives the course period plus one year. Interest is still charged during this time.
Business and project loan moratorium
Companies that borrow to build a factory, a road or a housing project often get a moratorium in the loan agreement. It runs through the construction period, when the project is not yet earning. Interest still builds up and is often added to the loan, so repayment starts from a bigger amount.
RBI relief moratorium
In March 2020, the RBI announced a moratorium of three months on instalments of all term loans outstanding on 1 March 2020. A later circular extended it to 31 August 2020. It was optional, interest kept building up, and it was not a waiver. Overdue amounts were not reported to credit bureaus during the first three months, as the PIB FAQ explains.
Legal moratorium under the IBC
Section 14 of the IBC bans lawsuits, asset sales and recovery action against a company once the tribunal accepts an insolvency case. This lets a rescue plan run without creditors racing to grab assets. It lasts until the process ends with an approved plan or an order to liquidate, which means selling the company to repay its creditors. The debt is not erased.
Quick comparison
| Type | Who it helps | How long it lasts |
| Education loan | Students and their families | Course period plus 6 to 12 months |
| Business or project loan | Companies building or starting a project | Set in the loan agreement |
| RBI relief moratorium | Borrowers hit by a crisis | 1 March to 31 August 2020 |
| IBC moratorium | A company in insolvency | Until the insolvency process ends |
Key Components of a Moratorium: What to Look For
Before you agree to a pause, check these six points with your lender.
- Length of the pause. Confirm exactly when it starts and when it ends. A few extra months can add a lot of interest.
- Interest treatment. Ask whether interest is simple or compounded during the pause, and whether you can pay it as you go. Our pages on compound interest and accrued interest explain how this builds up.
- Repayment after the pause. Find out if your EMI will rise or your tenure will grow, and ask for the new schedule in writing.
- Fees and charges. Ask whether any extra fee or penal charge applies. The 2020 RBI scheme barred penal interest during the pause, but a private arrangement may differ.
- Effect on your credit record. Ask how the lender will report the pause to credit bureaus. This matters for your credit score.
- Eligibility and opt-in. Check if the pause is automatic or if you must apply. The 2020 scheme was optional and covered loans that were being repaid on time on 1 March 2020.
Benefits of a Moratorium
- Breathing room for cash flow. A job loss, a medical bill or a business slowdown can make EMIs hard to pay. A pause gives you time to recover without missing payments.
- Protection from default. When a moratorium is agreed or officially announced, the paused instalments are not treated as a default. Under the 2020 RBI scheme, overdue amounts were also not reported to credit bureaus for three months.
- Fits Indian life stages. A student does not pay EMIs while still studying. This suits families who fund an engineering or MBA degree today and expect income only after the course ends.
- Time to plan. The pause can be used to rebuild an emergency fund or sort out your budget, as long as you use it for that and not for new spending.
Risks and Limitations of a Moratorium
- Interest keeps building up. The loan grows while you are not paying. You can limit this by paying at least the interest each month during the pause.
- Higher EMI or longer tenure. Once the pause ends, either the monthly payment rises or the loan runs longer. Both mean a higher total cost.
- Interest on interest. If unpaid interest is added to the loan and then charged interest again, the cost climbs faster. Ask the lender to show you the repayment schedule before you agree.
- Not a right. Outside a government or RBI scheme, a lender can say no. It also helps to compare a moratorium with loan restructuring and forbearance, which are other ways to ease repayment.
- Weak fix for long-term problems. A pause helps with a short setback. If your income has dropped for good, delaying the problem can make it bigger.
Important:
A moratorium is not a waiver. Every rupee of principal and interest still has to be repaid, and the unpaid interest usually makes the loan bigger.
Frequently Asked Questions
What is a moratorium on a loan?
A moratorium on a loan is a set period in which you do not have to pay EMIs. It can be built into the loan, announced by the RBI or ordered under law. The loan is not cancelled. You still owe the principal (the amount you borrowed) and the interest, and repayment restarts when the pause ends.
Is interest charged during a moratorium?
Yes, in most cases. The 2020 RBI circular said interest keeps building up on the outstanding principal during the pause. Education loans often charge simple interest during the moratorium, then compound it afterwards. Paying the interest as it falls due keeps your loan balance from growing.
What is the difference between a moratorium and forbearance?
Forbearance is the wider idea, where a lender agrees to ease your repayment terms for a while. A moratorium is one form of it, where payments are paused for a fixed period. Other forms include longer tenure or smaller instalments. Our forbearance page lists a payment pause (moratorium) as one of its types.
Does a moratorium affect my credit score?
It depends on how it is set up. Under the 2020 RBI scheme, overdue amounts were not reported to credit bureaus during the first three months, per the PIB FAQ. For a private arrangement, ask the lender in writing how it will report the pause. Missing EMIs without an agreed pause can hurt your credit score.
How long is the moratorium on an education loan?
It is usually the course period plus six to twelve months, but the exact length depends on the lender and the scheme. For example, Bank of Maharashtra’s model scheme gives the course period plus one year. Read your sanction letter, because the length is fixed there.
Is the RBI loan moratorium available now?
No. The 2020 scheme covered instalments up to 31 August 2020 and has ended. Later relief came as loan restructuring rather than a fresh general moratorium. If the RBI announces new relief, your lender will share the terms, so check with them directly.
What is a moratorium under the IBC?
It is a legal shield for a company once an insolvency case is accepted. Creditors cannot file new suits, enforce security or sell the company’s assets while the resolution process runs. It protects the process, not the debt, so the company still owes the money unless a resolution plan says otherwise.
When should I consider asking for a moratorium?
Consider it when you face a short, temporary cash shortage, such as a gap between jobs. Ask first what it will cost you in extra interest, and compare it with restructuring. If you are unsure, a financial planner can run the numbers with you. See how goal-based financial planning works at Zenith Finserve.
