The second wave of the Covid-19 pandemic has battered the nation in devastating ways. Families have lost their dear ones, businesses have been shut down, and individuals have lost their incomes and jobs. The second wave has caused the economy to stagnate, making it extremely challenging for millions of individuals and businesses to stay afloat.
In these financially stressed times, the RBI (Reserve Bank of India) has offered restructuring options to borrowers who have a hard time repaying their loan EMIs on time. Unlike the first Covid-19 relief package, no moratorium has been announced this time. However, other relief measures have been introduced to reduce the financial burden of borrowers.
Key Highlights of Restructuring 2.0
In an exclusive address regarding the new package, RBI governor Shaktikanta Das announced the details of Resolution Framework 2.0.
- The new restructuring 2.0 is available to individuals and small businesses facing financial hardships due to the pandemic.
- Borrowers who have not applied for the previous restructuring and those who had opted for restructuring 1.0 are eligible for restructuring 2.0.
- The RBI has also directed banks to provide priority loans to hospitals, diagnostic labs, pathology labs, importers of Covid-19 treatment drugs, vaccine makers, manufacturers and suppliers of oxygen cylinders and other entities engaged in providing Covid-19 healthcare infrastructure.
Who is eligible for restructuring 2.0?
- Individuals, micro, small and medium enterprises (MSMEs) and small businesses loan with the outstanding not exceeding Rs. 25 crores are eligible for restructuring 2.0, provided they meet the following two conditions:
- Did not avail restructuring in the previous year, under the first Covid-19 resolution package
- Have loans classified as standard accounts until March 2021
- Borrowers who have availed of restructuring under the Resolution Framework 1.0 are also eligible for restructuring 2.0. These borrowers can use this window (until 30th September 2021) to modify their moratorium period or extend the tenure of the loan up to a total of two years. For example, suppose a borrower had applied for a moratorium of 10 months under the previous restructuring. In that case, he can extend the moratorium by 14 months under this new scheme. Thus, the total moratorium doesn’t exceed 24 months (or two years).
- Borrowers must submit proof of financial hardship due to the pandemic, like loss of income, job loss, and reduced wages, to be approved for the restructuring.
Eligible borrowers can apply for restructuring at their respective lenders until 30th September 2021. Once applied, the lender has to implement the resolution and restructuring plan within 90 days.
What are the products covered under Restructuring 2.0?
The following loan products are covered under the Resolution Framework 2.0:
- Personal loans taken for personal use, business or commercial purposes
- Personal loans provided to self-employed professionals
- Car and two-wheeler loans
- Loans for purchase of land, property
- MSME loans
- Business loans like working capital loans, equipment loans, etc.
*Note that the actual list depends on the lender. The RBI has permitted lenders to draft their own rules for implementing the Resolution Framework 2.0.
Which loans are not eligible for Restructuring 2.0?
- Loans that have already been restructured once before
- Agricultural loans to individuals, agricultural credit societies and businesses
- Loans to financial service providers
How to avail the restructuring benefit for my loan?
The actual steps vary from lender to lender. We list out the general steps to be followed:
- Visit the website of the bank/lender. Fill the online application form for restructuring 2.0 and provide the relevant details.
- The lender will get in touch with you to work out the restructuring details.
- Alternatively, you can also contact your relationship manager or branch manager to implement the restructuring plan.
*Note that the lender has to implement the restructuring within 90 days once you submit the proposal.
Can I apply for restructuring several times on a single loan?
No, you can apply only once. Also, remember that it’s not mandatory for the lender to agree to restructure the loan. They can accept or reject your application at their discretion.
Can I apply for restructuring on multiple loans?
Yes. You can apply for restructuring on one or more loans as required. The lender may accept or deny your request after considering each loan’s viability and repayment potential separately.
I had already applied for restructuring last year. Can I apply again?
Yes. But you can get the tenure of the outstanding loan extended only by 24 months for both times together. For example, suppose you had availed an extension of loan tenure by 12 months last year. In that case, you can get an additional tenure extension of 12 months this time, making the total relief up to 24 months.
What are the restructuring options available to borrowers?
Borrowers can choose from any of the following options:
- The balance tenure of the loan can be extended for a maximum period of 2 years
- Opt for a temporary moratorium not extending two years on loan repayment
- Modify loan repayments to reduce monthly EMIs
What are the documents required to apply for restructuring 2.0?
You will have to provide supporting documents regarding your income, employment status and how it has been affected by the pandemic. Following are the general documents that you have to submit:
- For Salaried Borrowers
- Salary slips for the last few months starting from March 2021
- Declaration of estimated salary at the end of the restructuring period (not exceeding 2 years)
- Letter of discharge from job, in the event of job loss
- Bank account statements showing proof of loss of income or reduced wages
- For Businesses and Self-Employed Borrowers
- Current account statement starting from 1st April 2020 till date
- Income tax returns for the last three years
- GST returns filed for the previous year
- Balance sheet/profit-loss statements for the last two years
- Self-declaration stating decrease in cash flow, loss of income, etc.
Will restructuring impact my credit score/report?
Yes, the lender will report the loan as restructured to the respective credit bureau(s). This will be noted in your credit report and can cause your credit score to drop. Note that a loan marked as restructured makes it challenging to get approved for future loans and credit cards.
I have taken a loan with a co-applicant. Do I need the permission of the co-applicant for restructuring?
Yes. As per regulatory requirements, all borrowers and co-applicant(s) must sign the document regarding restructuring changes to the loan.
Final Thoughts
The RBI has once again provided financial relief to borrowers struggling to repay EMIs during these challenging times. However, keep in mind that restructuring is NOT a free pass to override your loan obligations. Restructuring an ongoing loan has long-term repercussions. It impacts your credit score and report. It also increases the overall interest outgo, thereby increasing your financial burden after the interim moratorium period.
So, go for restructuring only if you’re in a dire financial situation and stand the risk of defaulting on loan payments. The best way forward is to continue repaying your loan EMIs on time as per the current schedule and avoid unnecessary expenses till your financial situation stabilizes.