The regulatory package issued by the Reserve Bank of India (RBI) was concerned to help the borrowers in managing their debt during the pandemic. Several credit facilities, both secured and unsecured, are a part of the RBI regulatory package. The package initially provided a moratorium and later the central bank asked the lending institutions to provide a resolution plan. Personal loans are one such unsecured credit facility that this package has covered.
During the moratorium period, it is not required for the borrowers to pay EMIs (Equated Monthly Instalments) on the credit facility and the resolution plan focuses on restructuring the terms and conditions of the loan facilities. However, the interest charge will be applied during the moratorium period. The loan recast option shall be available for HDFC credit card dues and EMIs.
Significant aspects to be considered before applying for the personal loan restructuring scheme.
Loan-restructuring plan – The period
The remaining tenure of the credit facility can be extended to a period of a maximum of 24 months (2 years) to ease one’s monthly EMI repayment burden. The bank may levy a fee if the facility is restructured.
Credit card EMIs and Loans
Customers will have the option of restructuring their credit card balance, including loans within the credit limit. The amount will be put into a separate account. One may also choose to restructure either their card balance or loan or even both the facilities. A minimum outstanding balance of ₹25,000 is to convert the card or loan facility.
Eligibility criteria for restructuring loan
· Borrowers that are classified as standard, and not in default for more than 30 days with the bank as on 1st March 2020, and continue to remain as standard across all its facilities till date, are eligible for restructuring credit facility.
· The customer has to prove to be impacted financially by the COVID-19 pandemic in the form of reduction or loss of income or cash flows.
· The decrease of income and its financial impact on the customer will be reviewed by the bank based on the documents or information provided. The lender will assess the viability of the customer to pay the restructured EMIs before allowing the restructuring of the facility.
All relevant details are mentioned on the bank’s website for the application link. The customer is required to fill the application form and submit the relevant details. The link for the application will be updated shortly.
The customer has to submit documents that support the current status of their employment or business.
· For salaried borrowers – Bank statements and salary slips for the past six months are required.
· For self-employed borrowers- Bank statements, GST returns, Income tax returns, Udyam certificates, etc. are required.
The borrower may visit HDFC Bank’s website for the online restructuring application link.
Impact on credit score
As per regulatory guidelines, the particular credit facility will be reported to the credit bureau handling the report for the borrower as “Restructured”.
There can be situations where the borrower has taken restructuring for only one credit facility. Then it has to be reported at a borrower level to the credit bureaus. Hence, all facilities of the borrower with the bank will be classified and reported as “Restructured”.
Type of loans that will not be qualified for restructuring
· Loans to individuals/entities for agricultural purposes and classified as agricultural loans by the bank
· Agricultural credit societies
· Financial service providers
· Government bodies
· HDFC Bank employees
· Exposures to housing finance companies which have been rescheduled
· Loans provided for commercial use will be entitled to claim relief under the MSME guidelines
Experts say that the customer needs to consider the cost involved in the restructuring scheme before applying for it.
Mr. Gaurav Chopra, founder and chief executive officer of IndiaLends and President of Digital Lenders Association of India, says, “The borrower will have to pay a higher cost, including additional interest and fees”.
The term of the facility may also comparatively increase under the recast scheme. The overall interest paid during the duration of the loan will increase. The restructured facility will have a more extended repayment period and a payment holiday that will facilitate the borrower to settles the loan without making a default.
Mr. Gaurav Chopra added that it is thus a prudent choice to avoid the restructuring facility if the borrower can repay his or her EMI’s on time and the ones who can repay promptly, then, in that case, the payment should be made on time to prevent any delay or default.
Liquidity issues have arisen during this period, but with the support of the financial organisations, it wouldn’t be challenging to handle the situation and manage the debt.