Home Loan Restructuring

Home Loan Restructuring: Guidelines By RBI

EMI Deferment | Lower Repayment Options | Interest Reduction in Special Cases
24 Oct 2020

Home loans have always benefitted countless people, it is an easy way to finance a home purchase, build a house or own a property. However, lack of funds is not the sole reason for applying for a home loan; there are numerous other benefits that are tagged along with the loan. A home loan has zero prepayment penalty on with floating interest rates, which is one advantage of availing a home loan. Since the pandemic had a significant impact on the economy, many home loan borrowers faced difficulties in repaying their loan. To bring relief to borrowers in such times, the Reserve Bank of India (RBI) announced the loan restructuring scheme.

The RBI's circular dated August 6, 2020, addressed the financial stress caused due to the pandemic and has proposed a restructuring facility on loans. The restructuring of loans can be offered to borrowers whose repayment is impacted due to the pandemic crisis. To approve this facility, the lender will assess the stress caused to the borrower and the viability of the resolution plan.

Resolution Plan Eligibility

The following are the eligibility criteria for loan restructuring:

  • Individuals whose loan accounts are classified as “Standard” and are not defaulting for more than 30 days with the respective bank as on March 1, 2020. Such loan accounts will remain standard till the date of citation of loan restructuring. This date is what both the borrower and the lender have agreed to proceed with a term of the restructuring plan.
  • Until the restructured terms are implemented by the bank or financial institution, the borrower shall be required to continue to make repayments towards the loan as usual.
  • Only the ones who are severely impacted due to the pandemic facing the loss of jobs/reduction in income may be considered eligible under the resolution framework.

Restructuring Facility

  • The Reserve Bank of India (RBI) has ot approved any bank to provide loan restructuring without extending the tenure for more than two years, despite flexible repayment schedules.
  • In order to address borrower issues and avoid classifying defaulters as non-performing assets (NPAs). Also, if a borrower availed the RBIs six months moratorium on a loan that has 15-year tenure, the loan tenure automatically gets extended by 14 months.
  • The committee that was tasked to recommend the benchmark for financial parameters to be factored into loan restructuring.
  • The committee is expected to include additional parameters like allowed debt to equity conversion, debt-equity ratio and permissible support for particular sectors.
  • Other options for borrower's relief are a few months of EMI deferment with a lower payout for borrowers who suffered total loss or reduced income due to the economic fallout caused by the pandemic.

Documents Required for Loan Restructuring

Borrowers willing to opt for the loan restructuring facility must submit their request for resolution plan for restructuring with their respective bank or lending institution along with relevant documents in support of their proposal for restructuring on loans.

  • The borrower has to submit a letter of termination from the company the borrower was previously employed or bank statements displaying the salary cut.
  • Self-employed individuals can present a bank statement that shows the drop in the cash flow of the business.

The documents as mentioned above, will act as proof that the pandemic has impacted you, and your loan will be considered for the resolution plan. Implementation of the restructuring in respect of the loan account shall be at the sole discretion of the lender, it will also be subjected to the terms and conditions mentioned in the board-approved policy.

A home loan is an excellent tax-saving instrument, due to numerous tax deductions available under Sections 24, 80C and 80EEA of the Income Tax Act. Numerous lending institutions and NBFCs offer home loans at attractive interest rates. The online application process for loans is quick and easy. You can avail a loan through the Finserv MARKETS app. Apply for a Home Loan at Finserv MARKETS to get the best deal on loans. An eligible home loan borrower can get a loan of up to Rs.3.5 crore as a sanction to purchase or build the house of your dreams. Once the loan gets approved, the funds get deposited to your account within 24 hours. You get nominal interest rate and a flexible tenor of up to 240 months and get access to additional benefits such as additional Home Loan Top Up of up to 50% of your sanctioned loan amount.

Also, get access to personalized pre-approved offers and added services like a free Financial Health Check Report (FCHR). The financial health check report will help you understand and improve your credit standing for future loan applications.

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