RBI has announced a new Loan Restructuring Scheme 2021 named Resolution Framework – 2.0 to help individual borrowers tackle the financial difficulties faced during the second wave of the Covid-19 pandemic. Eligible borrowers who did not avail the first loan moratorium last year can now avail the new scheme and those who opted for the loan moratorium in 2020 can get their moratorium period extended by up to a maximum of 2 years. The article delves into various key aspects of loan restructuring 2021 including its eligibility requirements, benefits, ways to avail and so on.
COVID-19 Relief Measures from RBI
On 5 May, 2021, the RBI has announced the Resolution Framework 2.0 for borrowers including individuals, small businesses and MSMEs to help tackle the financial crisis resulting from the second wave of the Covid-19 pandemic. For individual borrowers the following relief measures are offered by RBI:
- Option to opt for the new/second resolution plan to eligible borrowers who did not avail the first one
- Option of increasing the moratorium period and/or extending the residual tenure up to a total of two years for eligible borrowers who had availed the moratorium earlier
However, the exact framework and relief they intend to provide to borrowers shall be decided by the lenders. This may also vary from one lender to another.
Eligibility for Personal Loan Restructuring 2021
The eligibility criteria to avail the new loan restructuring may vary from one lender to another. It can also vary depending upon whether you had availed the moratorium earlier or not. As per RBI’s recent guidelines, the following are some basic eligibility criteria that a borrower must fulfill in order to be eligible for this Resolution Framework – 2.0:
- Individual borrower’s aggregate credit exposure should not exceed Rs. 25 crore.
Additional Specific Criteria for borrowers who did not avail the moratorium earlier:
- The borrower should not have availed restructuring under any of the earlier restructuring frameworks (including under the Resolution Framework 1.0 dated August 6, 2020).
- The borrower must be classified as ‘Standard’ as on 31st March, 2021, that is, there should not be any default in loan repayments till 31st March, 2021.
How to Apply for Loan Restructuring?
Borrowers can apply for loan restructuring 2021 by contacting the lender. You can visit the branch directly or contact your relationship manager for complete details.
As per RBI guidelines, the last date to apply for the new loan restructuring is 30th September, 2021.
Benefits of Loan Restructuring 2021
Key benefits of the Resolution Framework 2.0 are:
- By allowing existing beneficiaries to postpone EMI payments, the moratorium can help them tackle the cash crunch resulting from the second wave of the Covid-19 pandemic and the lockdown.
- Once restructured by the lender, it may become easier for the borrower to pay off the debt and help in reducing overall NPAs for lenders.
- New beneficiaries can get some respite in making their EMI payments once their loan is restructured by the lender.
Things you should Know before Applying for Loan Restructuring
Here are a few key things that you must consider before opting for Resolution Framework – 2.0:
- Loan restructuring terms may vary from one lender to another. Read the terms laid by your lender properly before opting for the restructuring.
- Moratorium may come at the cost of additional interest that keeps accruing till the moratorium period ends. This may either result in an increase in your individual EMI payouts to some extent or an extension of your loan tenure (if EMI payouts remain the same).
- Also, depending upon the length of the moratorium period that you opt for, the loan account closure date may be extended but it will depend on the lender. For instance, in case you opt for a three-month moratorium and your lender approves it, your loan account closure date will move ahead by 3 months and so on for up to 24 months.
Thus, it is advisable that instead of opting for the loan restructuring you should keep paying your EMIs as per your original repayment schedule unless you have a severe cash crunch which has made it impossible for you to pay your monthly EMIs on time.
What is a Loan Moratorium?
Moratorium refers to deferment or postponement. It is a period over which the borrower is not mandatorily required to make any EMI payments during the loan tenure. It is also known as “holiday period” or “waiting period”. It is only after this period has elapsed that the borrower resumes making his/ her EMI payments to pay off the loan.
Moratorium lets people defer their repayments (for a fixed period) without heavy penalties that would be otherwise levied in case of defaults in timely repayments. This deferment does not have an impact on the credit history of borrowers and helps them maintain their creditworthiness. However, moratorium comes at the cost of additional interest that keeps accruing till the moratorium period ends.
The moratorium due to COVID-19 was first offered by RBI in March 2020 which permitted borrowers to defer a maximum of three EMI payments with the due dates falling between 1st March, 2020 and 31st May, 2020 without any impact to their credit score. This first moratorium was later extended by 3 months to 31st August, 2020. The RBI later allowed the loan moratorium to be extended, as part of restructuring, up to a total period of 2 years. The second loan moratorium or loan moratorium 2021 is an extension of the same and can be availed by eligible borrowers who had opted for the moratorium earlier as well as those who did not.
How is loan moratorium different from loan restructuring?
The first Covid-19 moratorium was introduced in March 2020 and was later extended up to September 2020. However, not all borrowers were in a position to start making regular EMI payments due to the financial crisis of the pandemic and the resulting lockdowns. Thus, to minimise the repayment burden of those who were severely impacted, lenders introduced the RBI approved Covid-19 personal loan restructuring mechanism.
Some ways in which the restructuring mechanism is aimed to offer relief to borrowers of personal loans are:
- Changes made to the repayment amount/ number of EMIs payable
- Sanctioning of additional credit
- Option to roll over credit facilities
- Conversion of incurred accrued interest (or future accrued interest) into a separate loan account
- Granting additional moratorium besides earlier COVID-19 loan moratorium for a maximum period of 2 years
Moratorium aims to offer short term relief to eligible borrowers through payment deferment. It can be availed by all personal loan borrowers provided they meet the eligibility criteria. However, moratorium is also one of the ways in which the restructuring framework aims to offer relief to borrowers. Whereas, restructuring is offered at the lender’s discretion using any of the above methods or a different method depending on the genuine need and problems of the borrower.
Q1. Can loan moratorium be used to waive loan interest?
No. Loan moratorium simply allows you to defer/ postpone your EMI payments for the moratorium period and does not waive off loan interest/ EMI payment(s). In fact additional interest keeps accruing during the moratorium period, and you will have to pay slightly extra later.
Q2. How will the new restructuring affect my current loan tenure?
In case you opt for the new restructuring, your loan tenure may be extended by the extent of the tenure chosen and accepted by the bank.
Q3. Is loan moratorium a good or bad idea?
The pros and cons of opting for the loan moratorium depend upon your own unique situation and if you are facing severe financial difficulties due to the pandemic. In case your income and cash flow have been severely impacted and it is not possible for you to make scheduled EMI payments, then you can take advantage of the moratorium. It allows you to defer payments without levying heavy penalties, late payment charges, etc. However, you must remember that EMI payments are only deferred and not waived off and you have to pay slightly extra as additional interest which keeps accruing during the moratorium period. Thus, if you can, it is always good to pay your EMIs as scheduled to avoid increasing your future repayment burden and the total cost of the loan.
Q4. How long is the moratorium period for existing customers?
The loan moratorium can be extended for a maximum period of up to 2 years.
Q5. Do I have to pay extra charges for opting for a loan moratorium ?
No extra charges need to be paid for availing the loan moratorium. However, additional interest charges accrued during the moratorium period will have to be paid once the moratorium period ends.
Q6. When is the last day to apply for the new loan restructuring?
The last date to approach lenders and make the restructuring request is 30th September, 2021.
Q7. How long can a lender take to implement the restructuring?
Once you apply for the new Resolution Framework – 2.0 and fulfill all the eligibility conditions, the lender will have to implement it within 90 days.
Q8. Will there be any SI/ cheque bounce charges if I avail the moratorium/restructuring?
No. If you opt for the moratorium/restructuring, there will be no cheque/ SI bounce charges for non repayment during the moratorium period.