Loan moratorium ends, but retail borrowers need not worry; restructuring plan in works at PSU banks

The proposed loan restructuring will enable banks to extend the term of retail loans by two years without increasing customers’ EMI amounts.

Even as the moratorium window on bank loans closes, retail borrowers may still get relief on repayment and tenure through a one-time restructuring scheme, which is in works. PSU banks are likely to implement a uniform framework for restructuring of retail loans, The Indian Express reported citing unidentified sources. On the other hand, a framework for corporate loans will be guided by final guidelines from the RBI, the report said. After RBI Governor Shaktikanta Das announced the one-time loan restructuring facility earlier this month, Finance Minister Nirmala Sitharaman is likely to take up the issue in the forthcoming meeting with the heads of banks and NBFCs.

The proposed loan restructuring will enable banks to extend the term of retail loans by two years without increasing customers’ EMI amounts (equated monthly installments). The banks are in the process of identifying the retail loan accounts which may require the restructuring facility, a PSU bank employee told the paper, adding that the borrowers will be given an option based on the bank frameworks and RBI rules.

At present, loan accounts that are in default for not more than 30 days as on 1 March 2020 are eligible for restructuring. RBI’s circular on Resolution Framework for Covid-19-related Stress also underlined that the banks may look to grant additional moratorium of two years. The resolution plans may include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of moratorium, based on an assessment of income streams of the borrower for up to two years. Consequently, the overall tenure of the loan may also get modified.

Shaktikanta Das had asked the banks to start the process on their own and prepare the resolution plan by the end of this month. He had added that the bank moratorium was a temporary solution to respond to coronavirus lockdown but the resolution framework is a permanent solution. Meanwhile, the Ministry of Finance has said that the review will focus on enabling businesses and households to avail the revival framework on the basis of viability, necessary steps like finalising bank policies, and identifying borrowers. Discussing issues that require addressing for smooth and speedy implementation is also on the government’s cards.