RBI’s individual loan restructuring scheme: All you wanted to know about it

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September 09, 2020 2:26 PM

To help the borrowers impacted by Covid-19, the RBI has announced guidelines for devising the policy for granting relief to such borrowers.

RBI individual loan restructuring scheme, personal loan restructuring scheme, RBI, EMI, NPA, salaried class, Covid-19, consumer credit, education loan, home loan, personal loan, resolution plan, credit scoreUnder the resolution plan, as permitted by the RBI, a borrower can avail the facilities only if the loan was outstanding for not more than 30 days as on 1st March 2020.

Looking at the difficulties faced by individual borrowers in servicing their EMIs due to reduced earning capacity of the salaried as well as self employed, the RBI vide its circular dated 6th August 2020 has advised all the lenders to prepare a resolution policy for the borrowers impacted by the Covid-19 pandemic.

Let us discuss the various aspects of the resolution plan as applicable to individuals borrowers.

What is the need of such resolution plan

Due to the impact of pandemic, some employees have lost their jobs and some have been asked to work with reduced salaries. Likewise, many self employed have seen a slowdown in their business. These people have been facing problem in servicing their EMIs. As a temporary measure, the RBI had allowed banks to grant a moratorium for six months’ EMIs, which ended on 31st August 2020. The moratorium was available indiscriminately to all the borrowers, but it could not go on for all the borrowers for an indefinite period. So, to help the borrowers impacted by Covid-19, the RBI has announced guidelines for devising the policy for granting relief to such borrowers.

What types of loans are eligible for restructuring and what are the options

Initially when the RBI announced the proposal, it had used the word “personal loans” and a majority of the people interpreted it to cover only unsecured personal loans. This made the home loan borrower worried a lot. However, the circular dated 6th August, 2020 has cleared it which referred to a definition of “personal loan” in its circular dated 4th January, 2018. The definition is reproduced below:

“Personal loans refer to loans given to individuals and consist of (a) consumer credit, (b) education loan, (c) loans given for creation/ enhancement of immovable assets (e.g., housing, etc.), and (d) loans given for investment in financial assets (shares, debentures, etc.).”

From the above definition, it becomes evident that the restructuring proposal is available to almost all the individual borrowers. Under the resolution plan, as permitted by the RBI, a borrower can avail the facilities only if the loan was outstanding for not more than 30 days as on 1st March 2020. So in case your loan was overdue for more than 30 days on the cut-off date or had already become an NPA prior to that date, you are not entitled to avail this facility. You can also avail the facility even if you have serviced all the EMIs and your loan is a standard loan even on the date of making application for restructuring. This facility is available whether you had availed the moratorium or not.

In addition to granting a further moratorium of upto two years, a borrower is allowed the facility of rescheduling of loan or of conversion of outstanding interest into a separate credit facility. This is one time option and the borrower has to apply latest by 31st December 2020.

Impact of credit history and impact on credit of the restructuring plan

Before granting you the restructuring facility, the lender will get your credit history and ascertain whether you are still credit worthy of getting a moratorium or not. So, in case your credit history has become bad after your took the existing loan, the lender may refuse you the restructuring. Moreover, even in case the facility is granted to you, the fact of you having availed restructuring will be reported to the credit information bureaus like CIBIL. This will certainly affect your credit history and credit score adversely, but not as adversely as it would have had your loan become an NPA.

Who is eligible for availing relief under the resolution plan and how to avail it

Though the benefit of moratorium for six months between 1st March 2020 and 31st August 2020 was available to all the borrowers, the proposal under the resolution plans would be available only to the borrowers who are financially impacted due to Covid-19. So, a salaried who has either lost his job or is working with reduced pay as well as a self employed individual impacted by this pandemic can also avail the option of restructuring.

If you feel that you will not be able to service your EMIs in future, you should approach your lender for granting you this facility. Since the option is available only to those buyers who have been impacted by the Covid-19 pandemic, you will have to submit some documentary evidence in support of your contention that you are financially impacted due to the pandemic. For establishing this you can either submit the letter issued by your company terminating your services or a copy of the letter or email informing you about your salary cut. The self employed can establish the fact of the financial position impacted with bank statements or GST returns or similar document acceptable to the lender.

(The writer is a tax and investment expert and is working as Chief Editor at ApnaPaisa. He can be reached at balwant.jain@apnapaisa.com)

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