New RBI guidelines on loan moratorium: What should borrowers do?

September 26, 2020 10:42 AM

Here is everything you need to know about the new RBI guidelines on loan moratorium and what your current options are as a borrower.

loan moratorium, New RBI guidelines on loan moratorium, What should borrowers do, personal loan, home loan, Supreme Court, Eligibility for new debt resolution, CibilThe RBI has stipulated certain eligibility criteria if you choose to avail the new debt resolution option.

The current uncertainty due to the Covid pandemic is not just a medical one, but has also spilled over to the financial world, with the ending of the 6-month loan moratorium period on 31st August 2020.

Even while the moratorium period was on, there were varying voices on further extension of the tenure, levying of interest during the moratorium period, and the overall financial instability it was causing. With things spilling into the lawns of the Supreme Court, the uncertainty still lingers on especially in the minds of the common borrower.

Here is everything you need to know about the new RBI guidelines on loan moratorium and what your current options are as a borrower.

The current legal status

First things first, the moratorium period is not likely to be extended beyond the already passed deadline of August 31, 2020. The relaxation, which was well received initially, had started to lose its sheen. The moratorium had come to a point where it was hampering the financial work flow of banks and NBFCs, causing instability and even cash crunch. The borrowers too were not benefitting much, with their interest liabilities getting compounded.

But this does not mean the end of the road for you as a borrower. Understanding the economic hardships caused by the pandemic, RBI on its part has offered a one-time new debt resolution window that can help borrowers without hampering cash flow of the banks.

The debt resolution plan is announced under the June 2019 prudential framework, which allows lenders to implement a resolution plan. RBI believes this new debt resolution framework will cover nearly 50-55% of the loans in the banking system, including personal loans as well as loans of small businesses.

Current status: What you need to know as a borrower

So while RBI is offering the new one-time debt resolution framework, the final call will be taken by the Supreme Court as it hears the moratorium related case on September 28, 2020. Meanwhile, the courts have also directed banks not to label any loans that were standard as on August 31 as Non-Performing Assets (NPAs) even if there is a default.

With the RBI permitting lenders to restructure their loans, borrowers would be allowed to avail the loan structuring option once it is formulated. Under the scheme, an individual can get his loan restructured to avail a further moratorium of two years.

Eligibility for the new debt resolution

The RBI has stipulated certain eligibility criteria if you choose to avail the new debt resolution option.

Firstly, there must be a direct relation of being financially impacted due to the pandemic genuinely hurting your loan repayment capacity. So if you have encountered job loss or definite loss of business, only then would you be able to avail the new facility.

In addition, the loan should not be overdue for more than 30 days on March 1, 2020 for it to be eligible.

Should you go for it, and how?

Once the loan structure gets finalized, you can approach your bank if your loan is eligible under the scheme. While restructuring of the loan will not impact your credit score or CIBIL, it will still get reported.

Hence, you should go for the loan restructuring scheme only if you are genuinely facing hardship to repay your loan EMI. If, however, you are financially secure, it may be better to avoid this one-time restructuring facility and continue with your regular EMIs.

Either way, the best course of action for now is to wait for the next court hearing on September 28, 2020 when details of the one-time loan restructuring are likely to be shared, offering more clarity.

(By Nisary M, Founder, Hermoneytalks.com)

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