Reserve Bank allowed banks to restructure loans
Loan repayment period will not extend beyond two years
The Reserve Bank of India (RBI) on Thursday did not make any change in the repo rate in the monetary policy. He has maintained at four percent. Major rates are also prevalent. However, in order to protect against coronavirus killings, the exemption for repayment of loan installments in March was abolished in August. That is, you will have to pay the installment on every loan from September, otherwise your credit score may be affected. However, banks are allowed loan restructuring. Know, how will the new announcement of RBI affect you?
What is the decision of RBI ?
The economy has slowed down due to coronavirus. In such a situation, recovery is difficult in the loans given by banks. In view of this, many borrowers are unable to repay the loan on time even if they want to. He wanted relief.
In such a situation, the RBI had announced a moratorium on EMI on all term loans from March 1 to May 31, 2020 in March 2020. That is, if you do not pay the installment, then your credit score will not be affected.
Later this moratorium period was extended by three months till August 31, 2020. There has been no announcement to increase it in the monetary policy on Thursday. That is, the moratorium period is over.
This simply means that from September you will have to pay the installment on your home loan, vehicle loan and personal loan as before March. If not repaid, credit score will be affected.
Banks also wanted permission to restructure the loan. The RBI has given him permission. Now, banks can change the repayment schedule of loans of their borrowers, increase the period or provide a payment holiday.
How will the announcement of loan restructuring affect customers?
The Reserve Bank has allowed all banks to restructure the loans of borrowers. It mentions personal loans, no separate provisions have been made for home loans, vehicle loans and other loans.
That is, if you are unable to repay the home loan or vehicle loan even after the end of the moratorium, then you will have to contact your bank or financial institution. He can restructure the loan on a case-to-case basis.
According to Shalini Gupta, Chief Strategy Officer, Myloncare, RBI has allowed banks to restructure loans. But who will get the benefit from it, only the banks will decide.
Experts say that the RBI has fixed provisions for personal loans, along with MSME and corporate loans. The Reserve Bank should also clarify what will happen to home loans and vehicle loans.
However, RBI has allowed restructuring the loans of only those borrowers who did not have default of more than 30 days as on March 1, 2020. I.e. those that have a direct effect of coronavirus-induced lockdown.
This will prevent old defaulters from adjusting to this scheme. Banks will have to make additional provisions on the remaining debt after restructuring. This means that the resolution plan will be on the new defaulters only.
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What is the difference between EMI Maratorium and Loan Restructuring ?
There was an exemption for non-payment of installments under the EMI Moratorium. During this period, whatever interest was created, banks would add to your principal money. When EMI starts, you have to pay interest on the entire outstanding balance. That is, interest will also be charged on the period of the moratorium.
Restructuring of loans is completely different from this. Banks have got more rights here. They will be able to decide whether to reduce the EMI, increase the loan period, only charge interest, or adjust the interest rate.
How will restructuring happen in personal loans ?
The RBI has also allowed one-time restructuring in personal loans. However, banks or financial institutions will not be able to restructure retail loans given to their own staff.
This account should be standard as on 1 March 2020. It should not have a default of more than 30 days.
If you are unable to repay the installment of personal loan, then you can apply for restructuring before December 31. Banks will have to take a decision on these applications within 90 days.
Banks and financial institutions will be able to extend the loan repayment period for a maximum of two years. They will be able to decide on the basis of income of the person.
SME Loan Restructuring
The RBI has also allowed one-time restructuring to micro, small and medium scale industries. The scheme will be available to MSMEs with outstanding loans up to Rs 25 crore.
The Reserve Bank said that the loan structure of MSMEs would have to be restructured before 31 March 2021. Under these guidelines, an additional provision of five per cent will have to be made for accounts on restructuring the loan.
The one-time restructuring scheme was announced in January 2019. It was later extended in February 2020. It has now been extended to give additional benefits to MSMEs due to coronaviruses.
How will the restructuring of large corporate loans take place ?
Banks can implement the resolution plan on December 31, 2020. If a borrower applies to the bank, banks will have to submit a solution in 180 days.
Banks and financial institutions will have to make an additional provision of 10 percent of the total debt before restructuring. If an Inter-Creditor Agreement (ICA) is not made in 30 days, then 20 percent additional provision will have to be made.
The committee is formed under the leadership of MV Katham. This will set the benchmark of the sector specific to the resolution plan. The committee will also decide on a resolution plan for loans of Rs 1,500 crore or more.
In cases where the total loan has crossed the Rs 100 crore mark, banks will have to do a credit evaluation of the resolution plan from a recognized credit rating agency.
