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RBI Permits Banks to do One-time Restructuring of Retail Loans


  • Struggling to make loan payments owing to COVID-19 related disruptions?
  • You can avail of a retail loan restructuring plan announced by the RBI

Although the Reserve Bank of India (RBI) did not extend the moratorium of retail loans from August 31, 2020, in its last monetary policy meeting held on 4-6 August this year, it has allowed banks to do the one-time restructuring of all retail loans for borrowers who have been paying loans on time as on March 1, 2020. The apex bank has asked the KV Kamath led-committee to send its report on the loan restructuring plan. Based on the report findings, the RBI will issue fresh guidelines regarding the retail loan restructuring plan. Check out below what is retail loan restructuring and its benefits.

What Do You Mean by Retail Loan Restructuring?

Retail loan restructuring means lessening the burden of borrowers by offering them a lower rate of interest, conversion into an affordable credit facility, reduction in the loan EMI, change in the loan tenure, and even a moratorium for specific periods. Details regarding whether the interest will be charged on moratorium will be made clear from the guidelines which will be issued by the RBI soon.

What Made the RBI to Introduce a Retail Loan Restructuring Plan?

While delivering his monetary policy speech, RBI Governor Shaktikanta Das had expressed concerns over the growing financial stress caused due to COVID-19 related disruptions. Keeping in mind the disruptions, the RBI has decided to offer a window under the 7 June Prudential Framework, enabling lenders to implement a resolution plan concerning eligible corporate loans without a change in ownership, personal loans, education loans, consumer credit, home loans, etc.

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Formalities Borrowers Need to Make to Avail of this Facility

As a borrower, one needs to have a resolution plan sanctioned before December 31, 2020. The lender will take a maximum of 90 days to implement the resolution plan.

Status of Loan Post Restructuring

The loan when restructured will continue to remain as standard. This will mean that the lender will not report to credit bureaus as defaulters against borrowers agreeing to the retail loan restructuring plan. But this is subject to borrowers making payments as per the agreed plan.

KV Kamath-led Committee Identifies 26 Sectors for Loan Restructuring

The KV Kamath-led Committee, as per media reports, has submitted its recommendations regarding loan restructuring to the RBI. The reports say that the committee has identified 26 sectors that require loan restructuring based on the financial parameters that got affected due to the COVID-19 pandemic. These sectors are steel, power, iron and steel, textiles, consumer durables, wholesale trading, aviation, real estate, logistics, mining, hotels, restaurants and tourism, etc. The report submitted to the RBI included financial parameters that the committee studied to identify the sectors requiring loan restructuring are – total outside liability to adjusted net worth, current ratio, debt to EBIDTA, debt service coverage ratio and average debt service coverage ratio.

A segmented approach of classifying accounts under mild, moderate and severe stress can help ensure a quick turnaround considering only the standard assets are eligible for the proposed scheme given the large volume, the committee added. The committee was tasked to make a loan restructuring plan based on the operating and financial performance of the borrower before COVID-19 and the impact the pandemic has on the performance in the first and second quarters of FY 2020-21. The cash flow situation for the current, next and subsequent years has also been addressed by the committee.

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