Banks have started offering a moratorium of two years to retail investors under the loan restructuring policy approved by the Reserve Bank of India (RBI). During the moratorium period, borrowers don’t have to pay EMIs on the loan. However, the interest will be applied during the two-year period. Those who have been deprived of their regular cash flow in the wake of coronavirus outbreak, will be eligible to apply for loan restructuring scheme. The loan recast option will available on credit card dues and EMIs as well.
To mitigate the hardship faced by the borrowers amid coronavirus pandemic, the Reserve Bank of India earlier asked the banks to provide a moratorium of up to two years to customers. “The aim of offering loan restructuring as an option is to provide relief to those borrowers who either lost their job, whose businesses have not revived or those who have suffered a huge loss in their business,” said Gaurav Chopra, founder and chief executive officer of IndiaLends and president of Digital Lenders Association of India.
Benefits: The benefit of opting for a loan restructuring plan is that the borrower may be able to reduce the amount of his EMI or get a moratorium on his loan principal repayments with the hope that his financial situation improves, Chopra added.
Key things to consider while opting for loan-restructuring plan
Clarity on the terms of the restructuring plan
Since there are no common set terms for the loan restructuring scheme, each borrower will thus have to check the terms basis what their individual bank or NBFC is offering, Chopra clarified.
For example, State Bank of India (SBI) recently announced the launch of their online portal for retail borrowers who are seeking further relief from their loan and EMI repayments with set rules and criteria to be fulfilled by the borrowers applying for the scheme. Hence, the eligibility criteria and other terms of the plan need to be verified before opting for the scheme in order to make an informed decision by the borrowers, Chopra advised.
Cost of restructuring and tenure of loan
Customer needs to consider the cost involved in the loan restructuring scheme before applying for it. “The borrower will have to pay a higher cost, including additional interest and fees,” Chopra added. For instance, the borrowers of State Bank of India will be required to pay additional interest of 0.35% per annum over and above their current pricing for the remaining tenure of the loan. HDFC Bank will be charging an additional processing fee for restructuring loans.
Moreover, the tenure of the loan may also comparatively increase under loan recast scheme. The restructured loan will have a higher repayment period and/or a payment holiday, the overall interest paid during the duration of the loan will increase.
For example, an existing loan having an outstanding balance of 10 Lacs at a 15% interest rate with 24 EMI’s remaining, may be restructured to have a payment holiday of 6 months; and 36 EMI’s thereafter. The same could incur a processing fee of 2% and be at an interest rate ranging from 15%-18%. So what could have been repaid in 24 months will now take 42 months to repay and will incur a much higher interest cost.
“It is thus a wise choice to not opt for a loan restructuring facility if the borrower has the ability to repay his or her EMI’s on time. And for those who are not facing any liquidity crunch and have enough money, it is rather advisable to rather repay all their loans as soon as possible,” founder of IndiaLends advised.
