EMI Moratorium: Restructuring of home, car, personal loans as per RBI circular – Explained

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Updated: Sep 11, 2020 1:17 PM

The resolution plans can include modification of terms of advances, restructuring, rescheduling of payments, granting of the moratorium, etc.

loan restructuring, rbi emi moratorium extended, 3-months extension, EMI, Interest, principal, home, car, personal loans,RBI has permitted lenders to allow one-time restructuring for personal loans while maintaining standard asset classification.

The RBI EMI moratorium on loan payments ended its six-month run on August 31, 2020. It won’t impact those who didn’t avail the moratorium and continued paying the EMIs on their home loan, car loan or personal loan. However, for those who had availed the moratorium and didn’t pay the instalments on the due dates, the unpaid instalments need to be paid now.

There are a few options for those who have availed the RBI’s EMI moratorium scheme.  One may repay the unpaid installments or approach the bank for further restructuring based on the RBI’s Restructuring Circular issued in August 2020. But, before you go for the restructuring option, there are some important watch-outs as well. Read on to know about them.

Before knowing that, you need to know how the payment process will work during the restructuring – “The RBI COVID-19 Regulatory Packages allow the repayment schedule for such loans as also the residual tenor, to be shifted across the board by six months after the moratorium period. Generally, the unpaid EMIs will be paid as per the revised schedule and the accrued interest is added to the balance amount, resulting in a further increase in tenor of the loan or a pro-rata increase in EMI amount, as the case may be. However, this may vary as per lender’s board approved policy,” says Veena Sivaramakrishnan, Partner, Shardul Amarchand Mangaldas & Co.

The banks are providing the restructuring options and depending on the amount of principal outstanding, one may defer the unpaid principal to the end of the tenure. However, actual restructuring will depend on the case-to-case basis based on conditions set by the lender. “RBI has permitted lenders to allow one-time restructuring for corporate loans without a change in ownership and personal loans while maintaining standard asset classification, vide circular on Resolution Framework for COVID-19 Related Stress dated August 06, 2020,” informs Veena.

But, will all loan accounts and any borrower be allowed to avail the RBI restructuring scheme? Veena says, “RBI has prescribed that the borrower’s accounts which were classified as standard, but were not in default for more than 30 days, as on March 01, 2020 shall be eligible for restructuring under Restructuring Circular. In this regard, based on RBI’s Kamath Committee’s recommendations, the lenders shall lay down board approved policy to offer reliefs to eligible borrowers under the Restructuring Circular, which will offer further insight to borrowers.”

The liquidity crunch still persists in many sectors of the economy, thus impacting individual borrowers as well. Not all borrowers may be in a position to start paying the EMI’s September onwards. It is better to approach one’s lender and ask the bank for a restructure of the loan citing the RBI’s restructuring circular.

“In such scenarios, the eligible borrower can approach the concerned lender to seek relief under the Restructuring Circular. Given that RBI has prescribed separate conditions for implementing resolution plan for personal and corporate loans, the borrower should avail the relief accordingly. The resolution plans can, inter alia, include modification of terms of advances, restructuring, rescheduling of payments, granting of moratorium, etc. Therefore, subject to the lender’s board approved policy in this regard, a request for resolution plan can be made to the concerned lender citing relief under Restructuring Circular,” suggests Veena.

Finally, there are a few important watch-outs for someone who wishes to go for restructuring of their loans. “A resolution plan under Restructuring Circular has to be invoked on or before December 31, 2020. Therefore, the concerned borrowers should approach the lenders keeping in mind the timeline prescribed by RBI. Borrowers should also be willing to provide additional collateral or guarantees and undertakings to ensure that a lender is able to take a decision and give the requisite reliefs. Expecting a loan to continue, with waivers on financial discipline, etc. but without providing any additional collateral or comfort is quite unreasonable. At the end of the day, banks and NBFCs run the business of lending and they expect returns to be able to sustain themselves,” says Veena.

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