Cash crunched due to COVID-19? Banks may extend a loan restructuring lifeline to borrowers

If you are concerned about having to restart your equated monthly instalments (EMIs) once the loan moratorium ends on August 31, relief is on the horizon.

The Reserve Bank of India (RBI) governor Shaktikanta Das on Thursday announced the contours of a resolution plan for retail borrowers, among others, reeling under the economic impact of the COVID-19 crisis. However, individual loans sanctioned to lending institutions’ staff will not be eligible for this exercise.

Banks’ olive branch

Banks can, till December 31, 2020, put in place a resolution framework for retail borrowers. Your bank could work out a plan well before this deadline too. They will have another 90 days to implement this plan. You will be eligible for this restructuring plan if your repayment record has been clear as on March 1, 2020. Your loan account should have been classified as ‘standard’ and not in default for more than 30 days with the lending institution as on March 1, 2020. To be sure, your loan account will be considered ‘standard’ even if you opted for the moratorium announced in March 2020. You may not have been paying the EMIs, but you are not a defaulter in this case. The moratorium facility was extended by the RBI and banks to help borrowers tide over the current economic crisis. It is a deferment, and not an EMI holiday, so your loan repayment commitment remains unchanged, as pointed out earlier.

The specifics of the recast plan will need the approval of individual banks’ boards. It could include rescheduling of EMI payments, conversion of any interest accumulated into another credit facility, or extension of moratorium, after assessing borrowers’ income streams, for up to two years.  Accordingly, your loan tenure could get extended. If your bank grants the moratorium, it will come into force immediately upon the implementation of the plan, the RBI said.

“Retail borrowers will be able to reduce the present EMI burden. With pay cuts and strained financials becoming prevalent, this move will go a long way in ensuring the cash flows available to the individuals are adequate,” says Vipul Patel, CEO and Founder, Mortgageworld.in.