Loan restructuring meaning, process & important points

COVID-19 brought in its wake one of the gravest economic crises Indians have ever witnessed. And loan borrowers had to face the worst of it, as they had to manage their EMIs alongside a cash shortage.

Many borrowers face such financial pressure due to different emergencies and situations in their lives. Fortunately, the RBI offers a loan restructuring scheme that helps borrowers sail through their EMI payments till they overcome their financial challenges.

If you’re a long-time Tata Capital customer with a loan that you’d like to restructure, here is all the information you need.

What is loan restructuring?

Loan restructuring allows borrowers under financial distress to modify or renegotiate the loan terms, like an EMI moratorium or rescheduling of repayments, with the lender to avoid EMI defaults.

If you’re finding it challenging to manage your loan repayments, restructuring your loan might be the way to go.

Types of loan restructuring options in India

The various types of loan restructuring options in India are:

1. Extension of tenure:

Lenders increase your loan repayment period, which lowers the monthly EMI. This is commonly used when there are temporary income issues, but a possibility to repay the loan over a longer tenure.

2. Lowering the interest rate:

Lenders may reduce the interest rate to decrease the overall interest cost and monthly burden. This option is usually offered if you have a good repayment history.

3. Reducing the principal amount:

In rare cases, lenders may waive a portion of the principal. This is more prominent during severe financial distress or settlement programs, helping borrowers close the loan.

4. Temporary suspension of payments:

Banks may offer a moratorium, pausing EMIs for a fixed period. The interest may continue to accrue during this time.

Key points and eligibility for loan restructuring

• With loan restructuring, you can extend your loan tenure for up to two years.
• The restructuring option is only available for business loan borrowers, micro, small, and medium enterprises (MSMEs), and small businesses.
• You can only avail of restructuring if you have outstanding loan dues of up to Rs. 50 crore.
• Any overdue charges will not be restructured.
• You can’t restructure your loan if you already opted for it under the previous year’s scheme. However, you have the option of extending your loan moratorium period by two years.
• You can apply for the scheme up to 15th September 2021.

Loan restructuring process: Step-by-step guide

We, at Tata Capital, offer a seamless restructuring experience for all our existing customers. So, if you have a loan with us, here’s how you can get it restructured.

Loan restructuring process for retail loan borrowers

Step 1: Head over to our website and click the ‘Login’ option in the top-right corner.

Step 2: Select the “Retail Customer Login” option from the drop-down menu.  Next, enter your registered phone number/email address/user ID, and enter the correct OTP to log in.

Step 3: Select the Customer service > Raise New SR tab.

Step 4: Once you’re on the loan restructuring page, follow the instructions prompted on the screen.

Step 5: You may need to provide a fresh NACH mandate for EMI repayments on your existing bank account.

Documents required for the loan restructuring application

The documents you need to submit to initiate the loan restructuring process are:

• Loan account details: This includes the loan number, sanction letter, and repayment schedule.
• Income proof: You must provide recent salary slips, bank statements, or business income documents.
• Proof of financial hardship: You can submit a job loss letter, salary cut notice, or medical bills to prove your financial challenges.
• Identity and address proof: Submit a valid copy of Aadhaar, PAN, passport, or utility bills.
• Written request/application: A formal request explaining the reason for restructuring is necessary.

Benefits and drawbacks of loan restructuring

Loan restructuring has both advantages and disadvantages. The benefits are:

1. Lower financial stress:

Restructuring reduces EMIs or pauses payments. This makes repayment easier during income loss or financial difficulty.

2. Prevents loan default:

It helps borrowers avoid missed payments. This also helps prevent legal action and recovery proceedings.

3. Protects credit score:

It is better to restructure payment on time than to default. Restructuring leaves a minor impact on your credit score.

The drawbacks of loan restructuring are:

1. Higher total interest cost:

The overall interest paid over the loan period increases when you extend the tenure or opt for a moratorium.

2. Possible impact on credit profile:

Restructured loans may be flagged in credit reports, affecting future loan eligibility.

3. Limited eligibility:

Lenders do not approve loan restructuring applications for all borrowers. The approval depends on the lender’s policy and the borrower’s repayment history.

Impact of loan restructuring on credit score

Loan restructuring can have a moderate impact on your credit score. Your credit report may show the loan as “restructured,” which lenders view cautiously. But if you repay EMIs on time after restructuring, your score can improve gradually. Additionally, if you restructure your loan often, it can affect your credit score negatively. It can also affect loan approvals in the future.

Tips for a successful loan restructuring process

Loan restructuring is beneficial for any borrower experiencing financial challenges. To take more advantage of the facility, here are some vital tips:

• Contact your lender early: Reach out to the bank as soon as you face financial stress.
• Explain your situation clearly: Share your reasons for restructuring. You can add documents as proof.
• Check available options: Understand tenure extension, EMI reduction, or moratorium choices.
• Maintain repayment discipline: Pay revised EMIs on time to rebuild trust.
• Assess long-term cost: Review total interest before accepting new terms.
• Keep records safely: Save approval letters and revised schedules for future reference.

Conclusion

If you have a loan with Tata Capital, you can apply for loan restructuring to ease your financial burden. Log in to your Tata Capital account today to begin your loan restructuring process.