COVID-19 came as an unexpected blow for borrowers in the country. Many faced layoffs, pay cuts and losses in businesses. To help the people distressed in this economic slowdown, the RBI announcedloan restructuring guidelines in 2020.

But after the second wave, when the moratorium ended, many borrowers still struggled for funds. So, the RBI announced a second framework in May 2021, the Loan Restructuring 2.0, which included benefits for individual borrowers.

Loan restructuring – Meaning  

This RBI scheme allows borrowers to initiate the process of restructuring, meaning negotiating the loan terms with the lenders to avoid defaulting on their payments.

Individuals and business owners can ask for a lower interest rate, longer tenure, or flexible repayment options during this rearrangement.

What is loan restructuring 2.0?

In the second framework of economic reforms for people affected by the COVID-19 pandemic, the government has provided specific rules for restructuring, meaning any individual or business opting for a loan restructuring must abide by these guidelines.

It includes information on eligible loans, excluded loans, eligibility criteria and the application process. One significant change in Restructuring 2.0 is it provides additional benefits to individual borrowers, making it a popular scheme among the public.

Who is eligible for loan restructuring 2.0? 

According to the loan restructuring guidelines by RBI, loan accounts classified as ‘Standard’ are eligible for restructuring, meaning only borrowers who have been making regular payments can avail of this facility. An inactive or defaulted loan account will be classified as ‘Substandard’ and will not be eligible for this scheme.

Also, MSMEs who have already applied for a loan restructuring framework are not eligible for this scheme. MSMEs also must fulfil some additional criteria to avail of this facility.

On the other hand, individual borrowers enjoy more relaxed eligibility criteria forloan restructuring, meaning even borrowers who have previously restructured their loans can apply for this scheme. The only requirement being the loan tenure extension must not exceed 24 months.

Which loans are eligible for restructuring 2.0?

The RBI guidelines include many popular loans in the restructuring 2.0 framework. Here is a list mentioning some of them.

For individuals:

  • Housing Loans
  • Education Loans
  • Auto Loans (Not including loans taken for commercial use)
  • All variants of Personal Loan Restructuring (includes credit cards)

Loans for Business Purposes to Individuals:

  • Aggregate exposure to the lending institutions must not be more than Rs 50 Crores as of 31.03.2021.

Loans to Small Businesses:

  • Must be a non-MSME (includes those engaged in retail or wholesale trade)
  • Aggregate exposure is not more than Rs 50 Crores.
  • Loans under e-DFS and eVFS.

What are the documents needed for loan restructuring 2.0?

Borrowers must ascertain their eligibility for restructuring, meaning they have to provide documentary evidence to show financial distress due to COVID19. The circumstances include:

  • Reduction in salary or income
  • Job loss or Closure of business
  • Suspension of salary during lockdown
  • Reduced activity in units in case of self-employed individuals
  • Increased expenditure due to the borrower being affected by COVID-19

For non-business or personal loan restructuring, borrowers can provide these documents as evidence:

  • Salary slips for March 2021 and the latest salary slip for the last 2 months
  • Letter of discharge from the job (in case of job loss)
  • GST returns from Oct-2020 to date
  • Income tax returns for FY-19 & FY-20 and FY-21 (if filed)
  • Declaration by self-employed professionals that their business is affected by COVID-19

For more details on loan restructuring eligibility, you can visit the lender’s website to get a list of documents needed to apply for this scheme.

How to apply for loan restructuring?

To apply for loan restructuring, you can follow the steps given below:

  • Visit the lender’s website
  • Fill the application with relevant personal details
  • Submit the required documents
  • You will receive a confirmation email or SMS.
  • The lender will appoint a relationship manager (RM) for loan restructuring, meaning a representative will contact you to negotiate the new terms for your loan.
  • After the new terms are approved, you can start paying back your loan accordingly.

What are the advantages of loan restructuring?

Any borrower looking for the following benefits must start their loan restructuring process immediately:

  • Postpone EMIs – This scheme is a perfect opportunity if you are going through a cash crunch due to the pandemic and need to delay your payments by a few months.
  • Reduce EMIs – Under restructuring 2.0, you can extend your loan tenure or negotiate interest rates with your lender. This can have a significant impact on lowering your monthly EMIs.
  • Avoid Defaulting- Missing your repayments can hurt your credit score, making it difficult for you to avail of other loan benefits in future. Restructuring your loan can help you avoid such scenarios.

Can loan restructuring affect credit scores?

After your loan restructuring is approved, it will reflect in your credit reports and history. Credit Bureau will report it as ‘Account Restructured under COVID-19’.  This may limit your borrowing options for a short period.

But you can always improve your credit score by repaying your loans on time. To nullify the effects of loan restructuring, 2022 will offer you many new opportunities as the world opens after the pandemic.

In conclusion

Loan restructuring, meaning a rearrangement of your loan terms, is a simple solution for the victims of an economic crisis beyond their control. But if you can hold out your funds and manage to pay your EMIs on time, you must do so.

Applying for these schemes can be time taking and requires proper documentation. Read through the loan restructuring guidelines by your lender thoroughly to avoid unnecessary complications in your application process.

If you have multiple loans, this restructuring scheme can help you manage your funds better till you recover from the effects of COVID-19. It will also reduce your financial burdens for a short while to help you concentrate on getting your career or business back on track.

If you wish to know more about loan restructuring 2022, you can visit your lender’s website or call a representative.

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