Big relief to borrowers: Banks, NBFCs can recast personal loans, extend moratorium

By Ankur Mishra

The Reserve Bank of India (RBI) on Thursday allowed banks and non-banking financial companies (NBFCs) to restructure personal loans, which includes granting moratorium to the borrower.  “The resolution plans may include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of moratorium,” RBI said. This will be based on an assessment of income streams of the borrower, subject to a maximum period of two years. However, lending institutions need to provide 10% for implementing resolution in personal loan accounts.

A senior public sector banker told FE, “RBI has now given choice to lenders for granting moratorium to individual borrowers for a maximum period of two years. This framework gives more flexibility to banks for choosing best option for resolving accounts.” RBI had earlier allowed granting moratorium to the borrowers for six months from March 1,2020 in two phases. In the first phase, moratorium was granted till May end, which was subsequently extended till August 31, 2020 in the second phase.

The regulator has given maximum time till March 2020 to implement resolution framework for personal loans. The resolution under this framework may be invoked not later than December 31, 2020, and must be implemented within 90 days from the date of invocation, RBI said.

The reference date for the outstanding amount of debt that may be considered for resolution shall be March 1, 2020, as per RBI. The regulator has allowed only ‘standard’ accounts to be eligible for restructuring. “Only those borrower accounts shall be eligible for resolution under this framework, which were classified as standard, but not in default for more than 30 days with the lending institution as on March 1, 2020,” RBI governor Shaktikanta Das said.

According to the framework, RBI has also allowed reversal of provisioning after individual borrower pays more than 20% of the outstanding debt. “Half of the above provisions may be written back upon the borrower paying at least 20% of the residual debt without slipping into non-performing asset (NPA) post implementation of the plan,” the central bank said in its notification. The remaining half may be written back upon the borrower paying another 10% of the residual debt, it further said.

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