RBI’s One Time Loan Restructuring Policy

In a major initiative and In order to help out borrowers dealing with liquidity issues, the Reserve Bank of India (RBI) has proposed restructuring of personal loans for those struggling with repayments. As per RBI, Personal loan includes gold loan, education loan, home loan, personal loan, consumer durable loan, car loan and loan against securities. It is to be noted that loans sanctioned for business and commercial purposes are not included.

The central bank said those borrowers who had been repaying regularly till March 2020 can now have a restructuring of their loan through a framework to be decided by the bank.

As per RBI, the framework will need to be fixed by December 31 and implemented within 90 days from then. Loans in default for more than 30 days as on March 1, 2020 will not qualify for this plan.

“Under the restructuring plan, banks can choose to reschedule loan repayments, convert any interest accrued or to be accrued into another credit facility, extend the loan tenor, or extend moratorium up to two years for the existing loans, depending on the current repayment capacity of the borrower,” .

This scheme should cover the bulk of the existing loans sanctioned to individual borrowers and will help them in repaying their loans as per their changed repayment capacity caused by the current pandemic whose salaries has been cut or who lost their job and who lost their earning.

This comes at a time when six-month moratorium announced on Equated Monthly Installment (EMI) is about to end on August 31, which means loan payments will start from September 1. Borrowers who must have taken the 6-month moratorium can pay it in one shot or ask lenders to add these to their existing installments. Borrowers also have the option of converting interest accrued during moratorium period into a separate loan. Also option can be availed by the borrowers by keeping the EMI unchanged but the loan tenure can be extended. Borrowers should aim to pre-pay the EMIs within the next 12 months.

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