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Eligibility Criteria and Guidelines for Loan Restructuring Scheme by RBI

To reduce the financial stress of borrower’s RBI is continuously making efforts after the Covid-19. It has issued the circular on the Resolution Framework for Covid-19 Related Stress dated 6 August, 2020 which is also called August 6 Circular. Under this circular, a limited time window for stressed borrowers is created to allow a resolution plan while permitting them to retain as “standard account”. But not all the borrowers are allowed to implement this resolution plan. 

There are certain criteria of eligibility as explained below:

Personal Segment: The loan should be classified as “standard” and not in default for more than 30 days with the bank as on March 1, 2020. The borrower should continue to remain standard as of the date of the invocation. 

Not all the personal loans are eligible; loans given to individual comes under the eligibility criteria are as follow:

  • Consumer credit
  • Education loan
  • Loans on immovable property and asset
  • Loans on investment in financial assets

MSME Segment: The loan account should have been classified as standard as on March 1, 2020, plus fulfill the following criteria:

  • As on March 1, 2020, there should be the aggregate exposure of INR 25 Crores including non-fund-based facilities, of banks and NBFCs to the borrower.
  • On the date of implementing the restructuring plan the borrowing entity should be GST-registered. Accounts that are exempted from the GST-registration are excluded from this condition. It will be determined based on the exemption limit obtained on March 1, 2020. 

Other Segment: Those not falling in the above category of Personal segment or MSME segment are also eligible for restructuring if the following conditions are fulfilled:

  • The account should be classified as “standard” as on March 1, 2020, but not in default for more than 30 days with any lending institution. 
  • In case of exposure to multiple lending institutions, the resolution framework will be invoked only if lending institutions representing 75 percent by value of outstanding credit facilities and not less than 60 percent of the lending institution by number agree for the same.

Loan restructuring Guidelines by RBI:

  • The resolution under this facility is extended only to borrowers who are facing financial stress after Covid19. Thus, it is the responsibility of the lending institutions to ensure these criteria.
  • For the borrower of the personal loan the resolution plan will be implemented only if all of the following conditions are met:
  • All essential documentation, including agreements between lending institutions and borrowers.
  • Any changes in terms of conditions of the loans get duly reflected in the books of the lending institutions; and,
  • The borrower is not default with the lending institution as per the revised terms.
  • In the case of only one lending institution, the decision for the resolution process by the borrower may be taken by the lending institution as per the Board approved policy of the institution. This must be processed within the outline of the framework. Also, the date of invocation will be the day on which both the borrower and lending institution get agreed to proceed with a resolution plan.
  • For loans of other exposures, with multiple lending institutions, the resolution process will be invoked only after the lending institutions represent is75 percent by value of the total outstanding credit facilities and not less than 60 percent of lending institutions by number agree for the same. But it should be invoked before 31 December 2020 and implemented within 180 days from the date of invocation. Moreover, they should sign the ICA within 30 days from the invocation otherwise the invocation will be treated as lapsed and the resolution process cannot be invoked again under this framework.
  • The ICA must include the dispute redressal mechanism. In case of any dispute, all the resolution process will be as per the provisions of ICA and RBI will not participate in this matter. 

All these efforts and restructuring processes are taken by RBI in the hope that the system will grow out of the crisis.

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