We will discuss here the loan restructuring programme recently announced by Reserve Bank of India and to be carried out by the banks to help borrowers financially distressed the economic crisis triggered by Coronavirus Pandemic
The details of the loan restructuring programme are being worked out by the K.V.Kamath Committee but the broad contours of the programme indicate provisions for relief for distressed borrowers
This will be done by a one-time restructuring of the loan
RBI recently announced a one-time loan restructuring programme for borrowers in financial distress after the outbreak of the Coronavirus Pandemic
The major features of the programme are such that they allow the distressed borrowers time to adjust to the economic disruptions and get their loan repayment process back on track
While the finer details are being worked out by a committee advising the RBI headed by veteran banker K.V.Kamath. The recommendation will be given to RBI and banks will be guided by them for their own norms
We will discuss here the broader features
We will be discussing here what is being referred to as "personal loans" and not corporate loans
Here, when we refer to personal loans, it covers the whole gamut of loans to individuals including consumer loans, personal loans, property loans, education loans
These loans would have been given by lenders including private banks, foreign banks, public sector banks besides NBFCs and cooperative banks
The loan restructuring programme conditions try to ensure that this only benefits people who have been impacted COVID19 disruptions
So, till March 31, 2020 if any borrower had upto or less than 30 days outstanding for the regular loan repayment qualifies for the one-time loan restructuring programme
The idea is that only those who suffered from COVID19 lockdown and other related effects should get relief
One of the most likely features of the loan restructuring programme would be extending the period or term of the loan
The rationale behind the one-time loan restructuring is to avoid another period of EMO moratorium or loan repayment moratorium that started during the COVID19 lockdowns
This is expected to prevent many borrowers being classified as defaulters and the loans becoming Non Performing Assets for banks
The loan restructuring will lengthen the loan term up to 2 years
An applicant will need to avail of this programme by the end of the current calendar year i.e. December 31, 2020
If you avail of the loan restructuring programme, you will end up paying higher interest rate. This would be upto 30 basis points or 30 percentage points more
This is so as the loan restructuring means that the banks need to incur additional cost in extending the loan tenure
If you had availed of EMI moratorium or loan repayment moratorium during the COVID19 lockdown, the interest payable for the period can be taken out as a loan and repaid
This can be paid over two years
The key about the one-time loan restructuring programme is the additional cost that you will need to pay
You are being given more time and the additional breathing space