Looking at the difficulties faced by Individuals borrowers in servicing their EMIs due  to reduced earning capacity of salaried as well as self employed, the RBI vide its circular dated 6th August 2020 has advised all the lenders to prepare a resolution policy for the borrowers impacted by the Covid 19 pandemic. Let us discuss various aspects of the resolution plan as applicable to individuals borrowers.

What is the need of such resolution plan

Due to impact of pandemic, some of employees have lost jobs and some have been asked to work with reduced salaries. Likewise many self employed have seen slowdown in their business. These were facing problem in servicing  their EMIs. As a temporary measure RBI had allowed banks to grant moratorium for six months’ EMIs which ended on 31st August 2020. The moratorium was available indiscriminately to all the borrowers but it could not go on for all the borrowers for indefinite period. So to help borrowers, impacted by Covid-19, RBI announced guidelines for devising the policy for granting relief to such borrowers.

What types of loan are eligible for restructuring and what are the options

Initially when the RBI announced the proposal, it had used the word “personal loans” and majority of the people interpreted it to cover only unsecured personal loans. This made the home loan borrower worried a lot. However, the circular dated 6th August, 2020 has cleared it which referred to a definition of “personal loan” in its circular dated  4th January, 2018. The definition is reproduced below:

“Personal loans refers to loans given to individuals and consist of (a) consumer credit, (b) education loan, (c) loans given for creation/ enhancement of immovable assets (e.g., housing, etc.), and (d) loans given for investment in financial assets (shares, debentures, etc.).”

From the above definition it becomes evident that the restructuring proposal are available to almost all the individual borrowers.

Under the resolution plan, as permitted by the RBI, a borrower can avail the facilities only if the loan was outstanding for not more than 30 days as on 1st March 2020. So in case your loan was overdue for more than 30 days on the cut off date or had already become an NPA prior to that date, you are not entitled to avail this facility. You can also avail the facility even if you have serviced all the EMIs and your loan is a standard loan even on the date of making application for restructuring. This facility is available whether you had availed the moratorium or not.

In addition to granting a further moratorium of upto two years a borrower is allowed the facility of rescheduling of loan or of conversion of outstanding interest into a separate credit facility. This is one time option and the borrower has to apply latest by 31st December 2020.

Impact of Credit history and impact on credit of the restructuring plan

Before granting you the restructuring facility, the lender will get your credit history and will ascertain whether you are still credit worthy of getting a moratorium or not. So in case your credit history has become bad after your took the existing loan, the lender may refuse you the restructuring. Moreover even in case the facility is granted to you, the fact of you having availed restructuring will be reported to the credit information bureaus like CIBIL. This will certainly affect your credit history and credit score adversely but not as adversely as it would have had your loan become an NPA.

Who is eligible for availing relief under the resolution plan and how to avail it

Though the benefit of moratorium for six months between 1st March 2020 and 31st August 2020 was available to all the borrowers, the proposal under the resolution plans would be available only to the borrowers who are financially impacted due to Covid 19.  So a salaried who has either lost job or is working with reduced pay as well as a self employed Individual impacted by this pandemic can also avail the option of restructuring

If you feel that your will not be able to service your EMIs in future, you should approach your lender for granting you this facility. Since the option is available only to those buyers who have been impacted by Covid-19 pandemic, you will have to submit some documentary evidence in support of your contention that you are financially impacted due to the pandemic. For establishing this you can either submit the letter issued by your company terminating your services or a copy of the letter or email informing you about your salary cut. The self employed can establish the fact of the financial position impacted with bank statements or GST returns or similar document acceptable to the lender.

The writer is a tax and investment expert and working as Chief Editor of ApnaPaisa. He can be reached at [email protected]

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  1. Anil madnani says:

    All personal loans are covered by insurance why cant insurance companies pay the loans as we have already paid insurance premiums as we dont know what will be the scenario of our income in future

  2. G h rao says:

    Very good clarity on moratorium sir in respect of personal loans which is 1/4 th of retail lending where around 15percent of population depends on personal loans a ailment only. Sir has not touched MSME borrowers wherein they are facing untold miseries due to pandemic Covid and restructuring and enhancement of existing limits will help them to some extent I do hope whereas big industries no possibility as loans are security oriented. Pl write your next lecture on specifically on MSME sir. Than u

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September 2021