RBI’s Loan Restructuring Decision and Resolution Framework

After the disruption caused by the pandemic, many borrowers are still struggling to repay their debt over the short term. Thus, RBI has announced loan restructuring to give relief for stressed borrowers of 26 sectors without classifying them as NPAs (Non-Performing Asset).

Borrowers are facing the issue of liquidity and cash flow including the large section of borrowers with a good repayment history. For such borrowers, RBI has acknowledged a resolution framework for allowing a one-time restructuring of loans.  

Loan restructuring decision by RBI: As per the report of RBI’s Financial Stability released in July, around 50% of individual loan borrowers availed themselves of the moratorium as on April 30. The plan is made to not only provide relief to the stressed borrowers but also help maintain the graph of the lending sector.

Resolution Plan: Resolution Framework has been introduced to reduce the financial stress of borrowers of 26 specified sectors. These 26 sectors are subject to certain financial parameters to get the benefits. 

The restructuring window has a strict entry barrier and a clearly defined timeline for the implementation of the scheme. Lenders will permit the borrowers for loan moratorium for a maximum of two years. Borrowers have to look for the details from lenders after various associated eligibility criteria.

Important Things about Resolution Framework:

This new resolution framework is valid for both corporates & non-corporates and also individuals. The benefits of new resolution can be availed only by the borrowers who have been affected by Covid-19.

Before permitting the resolution, the lenders are responsible to review the viability of the borrower carefully. Further, a board approved policy shall be placed by the lender before implementing this resolution. The reference date for the outstanding amount of debt is the 1st of March, 2020.

The provisions of this new framework are stated under two categories of loans i.e. personal and business loans. 

For personal Loan: Personal loans that are granted by lenders to individual borrowers (except staff of lender) are considered in this category. The RBI has defined an extensive framework for the lenders to resolve the stress in personal loan assets. The personal loan includes categories such as gold, education, home, personal, car loans, credit card dues, and loan against securities (except for business and commercial purposes).

Under this Scheme:

  • Borrower accounts who were standard and not overdue for more than 30 days as on 1st March 2020 are eligible for restructuring.
  • The lender and the borrower can invoke the resolution latest by 31st December 2020 and have to implement the restructuring within 90 days from the date of invocation.

For Business Loan: All eligible MSME loans except the personal loans stated above come under this category. Borrowers who have availed of housing loan, Education Loans, Auto Loans (other than loans for commercial use) are eligible for this scheme. 

Under this Scheme:

  • For the sole banking arrangement, the lender can take actions as stated in the board approved policy requested by the borrower. The borrower’s account should retain as standard till the date of invocation. 
  • In the case of more than one lender, lenders should represent at least 75% aggregate exposures by value to that borrower and at least 60% of borrowers in number agree to proceed ahead. The day will be considered as a date of invocation and should be fully implemented within 18 days after the date of invocation.
  • If there are multiple lenders then ICA has to be signed between the lenders within 30 days from the date of invocation. 
  • In multiple banking arrangements, a resolution may lapse if a borrower fails to represent the signed ICA by 60% in number and 75% value of aggregate exposure to the lenders.

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