What is the need for such a resolution plan
Due to impact of pandemic, some of the employees have lost jobs and some have been asked to work with reduced salaries. Likewise, many self-employed have seen a slowdown in their business. These were facing problem in servicing their EMIs. As a temporary measure, RBI had allowed banks to grant moratorium for six months’ EMIs which ended on 31st August 2020. The moratorium was available indiscriminately to all the borrowers but it could not go on for all the borrowers for an indefinite period. So to help borrowers, impacted by Covid-19, RBI announced guidelines for devising the policy for granting relief to such borrowers.
What types of loan are eligible for restructuring and what are the options
Initially, when the RBI announced the proposal, it had used the word “personal loans” and the majority of the people interpreted it to cover only unsecured personal loans. This made the home loan borrower worried a lot. However, the circular dated 6th August 2020 has cleared it which referred to a definition of “personal loan” in its circular dated 4th January, 2018. The definition is reproduced below:
“Personal loans refers to loans given to individuals and consist of (a) consumer credit, (b) education loan, (c) loans given for creation/ enhancement of immovable assets (e.g., housing, etc.), and (d) loans given for investment in financial assets (shares, debentures, etc.).”
From the above definition, it becomes evident that the restructuring proposal is available to almost all the individual borrowers.
Under the resolution plan, as permitted by the RBI, a borrower can avail the facilities only if the loan was outstanding for not more than 30 days as on 1st March 2020. So in case your loan was overdue for more than 30 days on the cut off date or had already become an NPA prior to that date, you are not entitled to avail of this facility. You can also avail of the facility even if you have serviced all the EMIs and your loan is a standard loan even on the date of making an application for restructuring. This facility is available whether you had availed the moratorium or not.
In addition to granting a further moratorium of up to two years a borrower is allowed the facility of rescheduling of loan or of conversion of outstanding interest into a separate credit facility. This is a one-time option and the borrower has to apply the latest by 31st December 2020.
Impact of Credit history and impact on credit of the restructuring plan
Before granting you the restructuring of the facility, the lender will get your credit history and will ascertain whether you are still creditworthy of getting a moratorium or not. So in case, your credit history has become bad after you took the existing loan, the lender may refuse you the restructuring. Moreover, even in the case, the facility is granted to you, the fact of you having availed restructuring will be reported to the credit information bureaus like CIBIL. This will certainly affect your credit history and credit score adversely but not as adversely as it would have had your loan become an NPA.
Who is eligible for availing relief under the resolution plan and how to avail it
Though the benefit of a moratorium for six months between 1st March 2020 and 31st August 2020 was available to all the borrowers, the proposal under the resolution plans would be available only to the borrowers who are financially impacted due to Covid 19. So a salaried who has either lost job or is working with reduced pay as well as a self employed Individual impacted by this pandemic can also avail the option of restructuring
If you feel that you will not be able to service your EMIs in the future, you should approach your lender for granting you this facility. Since the option is available only to those buyers who have been impacted by Covid-19 pandemic, you will have to submit some documentary evidence in support of your contention that you are financially impacted due to the pandemic. For establishing this you can either submit the letter issued by your company terminating your services or a copy of the letter or email informing you about your salary cut. The self-employed can establish the fact of the financial position impacted with bank statements or GST returns or similar document acceptable to the lender.
The writer is a tax and investment expert and working as Chief Editor of ApnaPaisa. He can be reached at email@example.com