What is Loan Restructuring?

Loan restructuring is a process used by banks to avoid the risk of default on existing loans. It is an option offered to borrowers to help them out of financial challenges or liquidity issues that could impact their loan repayment capacity.

RBI Loan Restructuring Scheme

In light of the Covid-19 pandemic that had resulted in an economic slowdown for businesses and salary cuts or job losses for individuals, the Reserve Bank of India announced a one-time loan restructuring scheme. This would allow banks to restructure their retail loans, including home loans, by changing the repayment terms. This would help borrowers to repay their loans on time in different ways based on the options offered by the bank. This would be done without having to declare the borrower as a defaulter.

Highlights of RBI Loan Restructuring Scheme

The highlights of the RBI restructuring scheme are as given below:

• Loan restructuring can be done either through a limited loan repayment holiday, rescheduling loan repayments, or lowering interest rates
• This is a one-time restructuring
• Only for borrowers who have been financially impacted by the Covid-19 pandemic
• The last date for restructuring of loans is 31 December, 2020
• All public, private, foreign, cooperative, rural, small finance, and Local Area Banks can offer loan restructuring
• It can also be offered by Non-Banking Financial Companies (NBFCs) and All-Indian Financial Institutions
• Only borrowers with a history of regular repayments, and not overdue for more than 30 days as of 1 March 2020, are eligible

Loan Restructuring Schemes from Top Banks

If you have chosen to restructure your home loan, the first thing to do would be to approach your bank or financial lender and seek relief citing the RBI Restructuring circular. A request for resolution plan should be submitted to the lender referencing the RBI circular. Since the last date given to banks to restructure loans is 31 December 2020, this should be done at the earliest. You may be required to provide additional guarantees or collateral or undertakings to prove that you can repay the loans under the restructured terms and conditions. The restructuring can be done by any of the following: payment rescheduling, moratorium, modifying terms of advances, etc.

1. SBI Loan Restructuring Scheme

   The following are some of the highlights of the SBI loan restructuring scheme:

   • A digital platform will be launched by 24 September 2020 for placing loan restructuring requests
   • Eligibility for loan restructuring based on present and expected income can be checked on the portal
   • Additional moratorium of 6 months to 2 years can also be chosen through the portal
2. HDFC Loan Restructuring Scheme

   The loan restructuring scheme offered by HDFC Bank has the following highlights:

   • Application form for the loan restructuring can be submitted online on the bank’s official website or by visiting the nearest branch
   • The balance tenure on your loan can be extended by up to 2 years
   • Documents reflecting your current income or employment will have to be submitted
   • Salaried individuals will have to submit bank statements and salary slips
   • Self-employed individuals will have to submit bank statements, income tax returns, GST returns, Udyam certificate, etc.
   • There may be a fee for restructuring the loan
   • Your loan will be reported as ‘'restructured’' to the credit bureau
   • All co-borrowers of the loan have to sign the restructuring agreement
3. PNB Loan Restructuring Scheme

   Punjab National Bank offers a loan restructuring scheme based on the following:

   • This will be a one-time loan restructuring window
   • Only offered to those whose income has been impacted due to the Covid-19 pandemic and the lockdown
   • Only for loan accounts not in default for more than 30 days as of 1 March 2020

Difference Between Loan Restructuring and Loan Rescheduling?

The difference between loan restructuring and loan rescheduling is as given below:

Loan restructuring: This is a redemption of the existing loan and requires submitting a new set of documents

Loan rescheduling: This is an extension of the loan repayment tenure with a lower monthly instalment and is a supplementary agreement not requiring any new documents

Pros and Cons of Loan Restructuring

The pros and cons of loan restructuring are as given below:

Pros: Loan restructuring can make it easier to repay your loans as your Equated Monthly Instalments (EMI) would be more affordable.

Cons: Your loan repayment tenure is extended which means you will be paying EMIs for much longer than the original tenure.