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.
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.
The highlights of the RBI restructuring scheme are as given below:
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.
The following are some of the highlights of the SBI loan restructuring scheme:
The loan restructuring scheme offered by HDFC Bank has the following highlights:
Punjab National Bank offers a loan restructuring scheme based on the following:
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
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.
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