Loan Restructuring After Pandemic

Loan Restructuring After Pandemic: What to Expect

How will loan restructuring works after Pandemic
24 Sept 2020
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The  pandemic has had a severe impact on the Indian economy. It has affected personal as well as government finances. The nationwide lockdown announced in March coupled with subdued consumer sentiment has impacted businesses across the board. It has resulted in mass layoffs and salary cuts, which has sent household finances into disarray. The government and the Reserve Bank of India have taken several measures to help stressed borrowers. In March, the central bank had allowed a moratorium on repayment of term loan instalments for a period of six months.

The moratorium

In order to help borrowers facing a liquidity crunch due to the pandemic, the RBI allowed banks to offer a six-month moratorium on repayment of term loans. As per the central bank’s guidelines, borrowers were allowed to defer payment of loan instalments between March 1 and August 31. However, moratorium allowed a temporary halt in repayment and not a complete waiver. The interest accrued during the moratorium will have to be paid by the borrowers after repayment starts. The RBI did not extend the moratorium after August 31, instead, the central bank proposed a separate resolution plan for personal loan accounts affected by the pandemic.

Loan restructuring

Even though the moratorium was not extended, the central bank suggested an alternative for borrowers unable to service personal loans. The RBI has allowed lenders to allow loan restructuring of personal loans stressed due to pandemic. As per the guidelines provided by the RBI, the lender is free to design the loan restructuring . The term and conditions of the loan recast will be different for every borrower and will also differ from lender to lender. The loan restructuring of personal loan is different from the moratorium offered to borrowers earlier. In the case of a moratorium, the borrower gets temporary relief from paying the EMIs but the interest accrued during the period has to be paid once the repayment resumes. On the contrary, the banks decide the relief to be given to the borrower in the case of a loan recast.  As part of loan restructuring, lenders have the flexibility to extend the loan tenure, reduce instalments for a few months or to reduce the interest rate.

Resolution framework for personal loans

The central bank has provided the guidelines for the resolution framework for personal loans. The loan restructuring scheme is supposed to function as follows:

  • The loan resolution plan option announced by the central bank is applicable only to personal loans affected by the pandemic. The personal loan covers gold loan, car loan, education loan, home loans, consumer durables loan and loan against security. 
  • The details of the loan recast will be decided by the lender as per the policies approved by its board. An important condition mandated by the RBI is that the extension of the loan tenor cannot exceed two years irrespective of any moratorium granted to the borrower.  
  • Borrowers can ask for loan resolution under the framework only till Dec 31 and the loan recast designed by the lender will have to be implemented within 90 days. The deadline essentially means that if you want to opt for a loan resolution, you will have to approach the lender before the end of the year.
  • The central bank has asked lenders to accept the loan recast of eligible accounts promptly. The time allowed by the RBI was deemed to be optimum for personal loans as small retail loans do not require validation from the Expert Committee.

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Conclusion

The nationwide lockdown announced in March and the closure of most of the businesses, has had a severe impact on household finances. The moratorium announced by the RBI provided a much-needed relief to financially stressed people. Major brunt was felt by the self-employed people due to reduced incomes. Servicing personal loan, car loan and the home loan had become difficult. Loan restructuring is a positive development for people who are still struggling due to the pandemic. If you need urgent finance to meet a requirement,you can  get a personal loan, available at Finserv MARKETS. The personal loan, available on  Finserv MARKETS, provides ample flexibility in terms of repayment and doesn’t require any collateral or security.   

 

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