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How can Loan Restructuring Impact Your CIBIL Score

The Reserve Bank of India had recently proposed a loan restructuring scheme for borrowers. This is a one-time restructuring of loans is for reducing the burden of repayment for borrowers who are going through financial difficulties due to the pandemic. The RBI has allowed the restructuring of loans post the six months’ moratorium which had closed curtains in August.

Under this restructuring facility, RBI had brought personal loans and also announced that that standard loan accounts (not in default for over 30 days on 1 March, 2020), will come under the resolution plan.

Eligibility for Loan Restructuring

  • Commercial Banks
  • Small Finance Banks
  • Local Area Banks and Regional Rural Banks
  • Primary (Urban) Co-operative Banks
  • State Co-operative Banks
  • District Central Co-operative Banks
  • Non-Banking Financial Companies
  • All-India Financial Institutions

Please note that loans applied with a non-banking organisation (NBFCs) is also eligible for loan restructuring.

Loan Restructuring and its Impact on Your CIBIL Score

While the scheme is a relief for many borrowers who are having difficulties in paying off their debt, keep in mind that restructuring will have implications on your credit score. Loans that fall under restructuring will be reported in credit reports as ‘restructured’. This could affect your CIBIL score.

You can always restructure if you cannot make repayments towards your loans, but the decision should be made based on your financial situation and the types of restructuring that the lender offers you.

Avoid trying to get new loans, if possible and bring down your credit utilisation ratio to 30%-40%.

Restructuring of Loans by the Reserve Bank of India

  • Interest that is charged, or to be accrued will be converted into other credit facilities.
  • You can reschedule the tenures of your loan repayment.
  • Specifics of the loan restructuring cover elements of liquidity, leverage, and debt serviceability.
  • A maximum of 2 years moratorium on your loans (based on income) will be allowed.

Things to Keep in Mind Regarding Loan Restructuring

  • No loan is eligible to become automatically restructured.
  • A request for loan restructuring sent via mail may not be considered.
  • It is only after a successful verification, that the team will contact you to discuss loan the terms of loan restructuring.

Documents Required to Apply for Loan Restructuring

Income proof documents:
  • Salary slips before and after 1 Mar, 2020
  • Income statements (self-employed/business entities)
KYC documents:
  • Aadhaar card
  • PAN card
  • Driving licence
Bank statements:
  • Last 3 months (salaried)
  • Last 6 months and statements from December 2019 till February 2020 (self-employed/business entities)
For self-employed applicants and business entities:
  • GST returns
  • MSME registration certificate
  • Income tax returns

FAQs on How can Loan Restructuring Impact Your CIBIL Score

  1. Will loan restructuring have an effect on my credit history ?
  2. As per the RBI guidelines, when you restructure your loan, the facility will be recorded as ‘Restructured’.

  3. Is there a processing fee I have to pay if I restructure my loan ?
  4. You may be levied a fee if you apply to get your loan restructured.

  5. If I pay my EMIs now and I do not choose for restructuring, can I avail the facility later ?
  6. If you can pay the EMIs, please note that the relief will be granted only before a certain date and the application has to be submitted before the said date.

  7. If I do apply for a loan restructuring, do I have to continue to pay the monthly EMIs ?
  8. If you submit your application for loan restructuring, until it gets accepted, you have to pay your monthly EMIs. After your loan restructuring request has been accepted, you can follow the new schedule.

  9. I did not take the moratorium from March to August, 2020. Am I allowed to still apply for a loan restructuring ?
  10. Yes, you can apply for loan restructuring. The bank will assess your application. This will be based on a few criteria.

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