The RBI announced a first of its kind, one-time restructuring benefit for both personal and corporate loans due to the Covid-19 pandemic that impacted millions of Indians financially. It's a great relief to borrowers as well as lenders since the restructuring process would happen without classifying these accounts as non-performing assets. Also note that this benefit is available only until the end of 2020 and must be implemented within 90 days of invocation.
But what is loan restructuring?
Loan restructuring is when a creditor alters the terms of a loan to help you at times of financial distress. It helps to avoid loans being classified as a non-performing asset (NPAs) and the borrower to get back on loan payments without the risk of defaults.
Here’s what happens when you approach your lender for loan restructuring:
- The lender will run an eligibility check on your loan account to see if it’s eligible for the restructuring. The basic eligibility criteria is that the borrower should have been impacted financially by the pandemic and the loan must be standard (and not default) as on 1st March 2020. Note that your lender may have other additional eligibility criteria.
- Once the eligibility check is done, the lender will then reach out to the borrower to discuss the restructuring terms. The restructuring options offered include: tenure change, EMI change or both.
- Once both the borrower and the lender have agreed to the new restructured terms, the new terms of the loan will be communicated to the borrower.
- The borrower then continues repaying the loan, as per the new terms.