You will have to bear an increased debt burden for up to two years if you opt for restructuring
The country’s largest public sector lender, State Bank of India (SBI) and the largest private bank, HDFC Bank, have made the first move on loan restructuring. SBI took the lead and made an announcement yesterday. Under the resolution plan approved by the Reserve Bank of India (RBI) for COVID-19 pandemic-hit loans, HDFC Bank announced its own restructuring scheme for its loan and credit card customers. This comes days after SBI Cards had earlier announced its own restructuring scheme for its credit card holders. SBI’s restructuring scheme will cover home, education, auto and personal loans, just as HDFC Bank’s would.
SBI has launched a facility on its website for customers to check their eligibility for the restructuring plan.
“Customers will find it operationally convenient to check their eligibility on our website before going to a branch in these pandemic times,” says C. S. Setty, Managing Director of Retail and Digital Banking at SBI.
If you are eligible, you will have to approach a branch with the reference number generated, to complete the restructuring process.
HDFC Bank too has launched a portal that allows customers fill an application form. An FAQ released by the bank suggests that it will shortly put up the link on its website.
What are the eligibility criteria to apply for the restructuring of my loan?
Under the resolution framework of the RBI, those borrowers whose loan accounts were classified as standard and not defaulted for 30 or more days as on March 1, 2020, and if their incomes are impacted by COVID-19 are eligible. This rule is common to all lenders.
The eligibility criteria for retail borrowers are as follows: reduction in your salary / income in the month of August 2020 compared to February 2020; suspension of salary during the lockdown period; job loss or closure of business during lockdown or reduced activity in business in the case of self-employed or professionals.
You need to apply for relief under the framework before December 24, 2020.
HDFC Bank has additionally said that all applications with a minimum outstanding loan balance of Rs 25,000 can be considered for this restructuring.
How do I check on SBI’s website whether I am eligible for the loan restructuring?
If you are an SBI customer, after logging into the bank’s website, enter your loan account number. Once you do that, a one-time password (OTP) will be sent to you on your registered mobile number. After OTP validation, you need to provide other information as specified in the eligibility criteria earlier. You will get to know of your eligibility and receive a reference number.
This reference number will be valid for 30 days, within which you need to visit the bank’s branch to complete the required procedure. The restructuring process will be completed after verification of documents at the branch.
HDFC Bank has not specified which months’ salary slips are required specifically. But, presumably, since this is a loan restructuring scheme for COVID-19 affected borrowers, the loss of income has to be demonstrated through the period of the pandemic. In other words, loss of salary or income during, say, last year would not be entertained.
What are the documents to be submitted at the bank branch?
If you are a salaried customer, you need to submit your pay slips for the months of February and August 2020, letter of discharge from your workplace (in case of a job loss), and bank account statements of monthly salary credits.
If you are a businessmen or are self-employed, then you need to submit: the statement of operating account for the period from February 2020 till 15 days prior to the submission of your application, bank account statement and a declaration that your business income is affected or had to suffer closure due to the COVID-19 pandemic.
Both segments of borrowers also need to provide a self-declaration of estimated salary / income after the end of the desired moratorium period (maximum 24 months).
As far as HDFC Bank is concerned, the process is not yet clear about what happens once you submit your documents. Further clarity is awaited.
I had not taken the loan moratorium option. But my income has reduced and am facing a financial crunch. Can I apply for restructuring of my loan?
Yes, borrowers who have not taken loan moratoriums can also apply for restructuring if their income is impacted by the COVID-19 pandemic.
If you are SBI customer, you can check the eligibility on the bank website. If you can establish your income is impacted due to pandemic then reference number will be generated and you need to visit the bank branch to complete rest of the process for restructuring.
Can bank reject my loan restructuring application even after generating the reference number online?
Yes, SBI can reject your loan restructuring application if they find a discrepancy in income entered online while generating the reference number to check the eligibility and in documents submitted to the bank branch.
The website only provides provisional eligibility. The decision conveyed by your bank branch is considered final after verifying the documents.
What is the restructuring plan like?
The relaxations which may be sanctioned under the framework are: a moratorium of up to 24 months, rescheduling of instalments and extension of tenure by a period equivalent to the moratorium granted, subject to a maximum of two years.
During the moratorium period, interest will continue to accrue in your loan account. The loan restructuring terms, which are decided by the bank after reviewing the application and agreed to by the borrower, can’t be changed later.
Will there be any change in my EMI after opting for loan restructuring?
Yes. The tenure of the loan will be extended. The EMI payable after the moratorium will be recalculated and the exact amount would be conveyed to you by the bank.
Do I have to pay any additional cost?
Yes. SBI has specified an additional interest of 0.35 per cent point (35 basis points) over and above your current rate for the remaining tenure of the loan. These additional charges are applicable for loans linked with external benchmarks such as repo rates and marginal cost of funds-based lending rate (MCLR). HDFC Bank has also said that it may levy a fee, but hasn’t specified the details.
Should I apply for restructuring of my dues considering the terms and conditions?
As far as possible, avoid opting for loan restructuring. You will have to bear an increased debt burden for up to two years, over and above what was your original loan tenure for SBI’s and HDFC Bank’s schemes. Plus, there is an additional interest cost of 35 basis points a year (SBI).A better strategy would be to dip in your liquid investments and also gold, if you have any. Try and liquidate these and pay off your debt. Just make sure that in the interim you do not take any additional loan and you have a definite plan to re-start your investments once your income gets back to normalcy again.