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Does loan Restructuring sound arcane to you? Have you read too many articles on loan restructuring and still not able to decipher it? And do you want to know the eligibility of loan restructuring? If these are the things bothering you, then you are in the right place. Here, at MyLoanCare, we will unlock the buzz word ‘loan restructuring’ and its eligibility criterion.
Let’s get started.
What is loan restructuring?
Novel Coronavirus pandemic impacted most people; some employees lost their jobs while others were asked to manage with salary cuts. Similarly, the business of the self-employed was also severely affected. Thus, the borrowers have been facing problems in servicing their Equated monthly payments. Reserve Bank of India, as a temporary measure, allowed banks to grant a moratorium for six months’ EMIs, which ended on August 31, 2020. The loan moratorium was available indiscriminately to all the borrowers; however, it could not go on for all the borrowers for an indefinite period. So, the RBI announced guidelines for such borrowers such as loan restructuring.
The loan restructuring is the alteration in loan terms which both parties have agreed to make the loan repayment more convenient for a borrower. This will help borrowers to reschedule their loan payment, or get a limited loan repayment holiday, or reduce interest rates on their existing loans depending on the agreement reach with their bank. The loan restructuring has been introduced to provide a holistic solution to the liquidity and viability-related issues faced by borrowers in the various loan categories.
Who are eligible for loan restructuring?
Although the eligibility for loan restructuring of different banks varies, these are the primary eligibility criterion related to loan restructuring:
- Credits available for the restructuring are consumer credit, education loan, loans given for creation/ enhancement of immovable assets and loans given for investment in financial assets.
- The scheme is for only those accounts which are in stress due to COVID 19. The borrowers should be classified as standard, but not in default for more than 30 days with any Bank or financial institution as on March 1, 2020. All other stressed accounts will have to follow the June 2019 framework for resolution. The restructuring has to be invoked before December 31, 2020.
- The resolution plans include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of the moratorium, based on an assessment of income of the borrower, subject to a maximum of two years. In addition to this, the overall tenor of the loan may also get modified commensurately.
- In the case of corporate borrowers, if there are multiple banks and financial institutions with exposure to the borrower, the resolution process will be treated as invoked in respect of any borrower if any bank representing 75% by value of the total outstanding credit facilities (fund based as well non-fund based), and not less than 60% of lending institutions by number agree to invoke the same.
- In all those cases where the total debt is above Rs 100 crore, the Bank is required to obtain an independent credit evaluation for the resolution plan from a recognized credit rating agency.
- A one-time restructuring scheme for MSME is also available. The scheme would only apply to MSMEs with outstanding debt worth up to Rs 25 crore.
A committee headed by K.V Kamath will be set up to make recommendations to the Central Bank on the required financial parameters, along with the sector-specific benchmarks to be factored into each resolution plan. Before you avail of any loan restructuring plan, check the complete eligibility criteria and what’s the impact of loan restructuring on your credit score and future loan eligibility.