The latest Reserve Bank of India circular on moratorium period provides updated guidance on how banks and other lending institutions can offer relief to borrowers through temporary deferment of loan payments. Moratorium periods became a widely discussed topic in India during the COVID19 pandemic when the central bank introduced a regulatory framework allowing borrowers to pause their loan instalments without being classified as nonperforming assets. Recently, RBI has expanded such deferment provisions through new directives aimed at supporting businesses facing economic challenges, particularly in sectors affected by global trade disruptions. These updated rules on moratorium period reflect RBI’s ongoing efforts to balance financial stability with borrower relief.
Background of Moratorium Periods and RBI Guidelines
The concept of a moratorium period was brought into focus when the introduced COVID19related regulatory relief measures in 2020. Under the original framework, lending institutions were permitted to grant a moratorium of three months on term loan instalments due between March 1 and May 31, 2020, with a possible extension. During this moratorium period, repayment of principal and interest could be deferred, and accounts remained standard for asset classification purposes, meaning they were not downgraded to nonperforming assets despite the delay in payments.
Although the pandemicspecific moratorium has long since ended, the idea of giving temporary payment relief has resurfaced in new contexts, especially as sectors face economic headwinds. The latest circulars update how such periods can be implemented under current conditions, allowing lenders a structured way to support borrowers without compromising financial system health.
Latest RBI Circular on Moratorium/Deferment for 2025
In a circular dated November 14, 2025, RBI announced the (Trade Relief Measures) Directions, 2025, which include provisions for a moratorium or deferment on loan payments for eligible borrowers. This guidance is aimed at exporters and other sectors impacted by global disruptions, such as supply chain issues and tariff pressures, providing them with temporary relief to manage repayments and working capital.
Under this circular, lenders are permitted to grant a moratorium on payment of term loan instalments, including principal and interest, falling due between September 1, 2025 and December 31, 2025. This moratorium/deferment period can also include deferment of interest recovery on working capital facilities such as cash credits and overdrafts. To support liquidity, the accrued interest during this period may be converted into a funded interest term loan repayable after March 31, 2026, but not later than September 30, 2026.
No Asset Classification Downgrade
An important feature of the latest moratorium guidance is that granting such deferment or recalculating drawing power on working capital facilities will not be treated as restructuring under existing regulations. As a result, banks and lending institutions are not required to downgrade borrower accounts for the period in which moratorium or deferment is granted. This protects both lenders and borrowers from adverse effects on financial records and asset quality assessments, helping maintain confidence in credit markets.
Who Can Benefit from the Moratorium?
The updated moratorium directives are primarily designed to help specific sectors that face persistent economic stress. Exporters, whose cash flows have been disrupted by global market conditions, are identified as key beneficiaries. By extending credit periods and allowing deferment on loan payments, RBI aims to provide these businesses with breathing room to manage operations effectively without triggering defaults due to temporary payment difficulties.
In addition to exporters, other commercially viable businesses that encounter temporary liquidity issues can also benefit if their lenders choose to grant a moratorium. Lending institutions, including commercial banks, cooperative banks, small finance banks, and nonbanking financial companies (NBFCs), are authorized to offer these deferments within the framework laid out in the circular.
Enhanced Credit Periods
Alongside the moratorium period, RBI has also allowed lenders to relax repayment timelines for export credit. Credit periods for preshipment and postshipment export loans disbursed up to March 31, 2026 may be extended, with a maximum tenor of 450 days. This additional flexibility on export credit is part of the broader relief package meant to sustain the export sector.
Implications for Borrowers
Borrowers eligible for the moratorium benefit from temporary relief from repayments. This can ease shortterm cash flow challenges and help businesses maintain financial stability during difficult periods. It is important to note that while payments are deferred during the moratorium period, interest may continue to accrue on loans, and borrowers should be aware of the eventual impact on total repayment amounts and schedules. The conversion of accrued interest into a funded loan repayable later gives borrowers additional time to organize finances without immediate pressure.
Borrowers should also understand that accessing moratorium benefits often requires active communication with their lenders and may involve meeting certain eligibility criteria. Unlike the broad, optin moratorium of 2020, the 2025 guidance gives financial institutions discretion to decide on granting moratorium or deferment based on individual borrower profiles and business viability.
Impact on Lenders and Financial Stability
From the perspective of lenders, the updated moratorium circular provides a regulated approach to granting deferments without triggering asset classification problems. By clarifying that moratorium or deferment will not be treated as restructuring, the policy prevents unnecessary downgrades of loan quality, which could otherwise strain the financial system. This regulatory relief encourages lenders to offer support without compromising their own risk management frameworks.
For the financial system overall, such policies aim to strike a balance between supporting economic activity and maintaining credit discipline. By providing targeted relief rather than blanket moratoriums, RBI helps ensure that liquidity support is extended to those who need it most while preserving the integrity of banking practices and longterm financial stability.
Challenges and Considerations
Despite the protections offered by the moratorium circular, there are challenges to implementing and benefiting from these provisions. Borrowers and lenders alike must carefully monitor the impact of deferred payments on longterm financial plans, including interest costs and repayment schedules. Borrowers who take moratorium relief should plan for eventual repayments and the accumulation of interest over the deferment period. Similarly, lenders must evaluate risk carefully when granting moratoriums to ensure that assistance is provided responsibly.
- Borrowers must consider how deferred interest affects total loan costs.
- Lenders need to balance support with prudent credit risk assessment.
- Clear communication between borrowers and lenders is essential to avoid misunderstandings.
- Monitoring emerging economic conditions could influence future guidance.
The latest RBI circular on moratorium period reflects an ongoing effort by the central bank to provide targeted relief to borrowers facing economic challenges, particularly in export and related sectors. By allowing lenders to grant moratorium or deferment on term loan payments and working capital interest, with protections against asset classification downgrades, RBI helps promote financial flexibility without undermining banking stability. While deferred payments provide temporary respite, borrowers should remain mindful of accrued interest and plan accordingly. The policy underscores RBI’s role in balancing immediate economic support with longterm financial system health as India navigates evolving market conditions.