It would be difficult to restructure personal loans and credit card debt

Like the first one, the second covid wave is also expected to have an influence on people’s livelihoods. Since the medical system is insufficient to manage the increasing number of cases, several states have declared lockdowns, and more could jump on board.

The Reserve Bank of India (RBI), unlike last year, has not announced a moratorium or any other form of relief for borrowers. Is it possible for a borrower or a credit card owner to obtain relief from a financial institution? “They may approach the lender or the card issuer and renegotiate the terms of payment if they have lost jobs or their employers have cut their salaries,” stated V.N. Kulkarni, a debt counselor, and retired banker. He also served as the chief counselor for the Bank of India’s Abhay Credit Counselling Centre.


“However, it is not easy. Most banks would turn down a loan restructuring request because their rules prohibit it. The borrower must be persuasive and approach the bank’s top officials, especially the recovery department’s general manager”, said Kulkarni.

There is an asset mortgaged with the lender when it comes to home loans. The Sarfaesi (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act allows it to seize the asset. Personal loans and credit card debts, on the other hand, require the financial institutions to go to court and file a civil suit in order to be recovered. “It can take years for a court to issue a recovery order. If the borrower is willing to pay and is looking for some relief, it is in the lender’s best interests to assist him”, Kulkarni said.

Lenders already have a strategy for restructuring loans that have been approved by the board. “However, most lenders do not provide restructuring to retail borrowers because it is costly. Most people would prefer a one-time settlement ” Clix Capital’s head of personal loans and fintech, Adheer Dhar declared. He went on to say that when a lender restructures a loan, it has to forego interest to give the borrower some leeway. The cost of compilation and reorganization is substantial. When it comes to small-ticket loans of 3-5 lakh, lenders can’t keep doing it over again.


Lenders have concentrated on providing personal loans to the salaried class over the last decade. Defaults are usually low in this category. And if a borrower is unable to pay back the loan, it is normally only for a month or two. When the borrower finds a new job, he begins repaying the loan. A lender can close an existing loan for a delinquent borrower and re-book a new loan with revised terms and conditions in rare cases, according to Dhar. Lenders can give such a restructuring if the principal amount is large or if a natural disaster strikes a city. Credit card companies, on the other hand, do propose a settlement.

“By definition, a credit card is not a term loan. Every month, a cardholder must make a payment. If a person accumulates a large debt and is unable to pay it off, the issuer can convert the outstanding balance into EMIs and require the cardholder to pay in two or three installments. The issuer may be able to relinquish a portion of the interest charges. It’s normal practice,” Dhar explained.

Because it is a settlement, the customer will not be allowed to use the credit card until it has been fully repaid. It’s a forced closure due to a settlement. Know that any loan or credit card debt settlement or renegotiation would have an effect on your credit score.


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