Credit restructuring: Overhaul of individual credits due to coronavirus: Who, how and when

The Reserve Bank of India (RBI) has issued guidelines for the overhaul or resolution of loans taken out by individual borrowers facing financial hardship due to the coronavirus pandemic. Banks should formulate their own policies for overhauling these loans based on these guidelines. The guidelines specify what types of personal loans are covered and the types of resolution plans that may be offered to borrowers by banks.
  1. Which individual loans are eligible for such an overhaul?
    The guidelines clarified that banks can propose an overhaul of all personal loans, that is to say loans granted to individuals and consisting of (a) consumer loans, (b) student loans , (c) loans granted for the creation / improvement of real estate assets (e.g. housing, etc.), and (d) loans granted for investment in financial assets (stocks, bonds, etc. ). In addition, consumer credit includes loans to individuals, which consist of (a) loans for durable consumer goods, (b) credit card receivables, (c) auto loans (other than loans for commercial use), (d) personal loans secured by gold, gold jewelry, real estate, term deposits (including FCNR (B)), stocks and bonds, etc. , (other than for business / business purposes), (e) personal loans to business (excluding loans for business purposes), and (f) loans for other consumption purposes (for example, social ceremonies, etc.).
  2. Which individual borrowers will be eligible for the loan redesign?
    In accordance with RBI guidelines, only accounts of individual borrowers will be eligible for resolution under this framework that have been classified as standard, but not in default for more than 30 days with the lending institution as of March 1. 2020. In addition, the eligible borrower accounts should continue to be classified as standard until the date of invocation of the resolution (ie the date on which the resolution plans come into effect) in this context. To this end, the invocation date is the date on which the borrower and the credit institution have agreed to implement a resolution plan in this context. In addition, the guidelines state that credit institutions must develop Council-approved policies regarding the implementation of viable resolution plans for eligible borrowers under this framework, ensuring that resolution under this facility is provided. only to borrowers stressed due to Covid19. The policy approved by the board of directors details, among other things, the eligibility of borrowers with respect to which credit institutions may be willing to consider the resolution, and defines the due diligence considerations to be followed by credit institutions. to establish the need to implement a resolution plan with respect to the borrower concerned.
  3. What are the deadlines for this resolution plan?
    The guidelines also specify that resolution under the loan restructuring framework can be invoked no later than December 31, 2020 and must be implemented within 90 days of the invocation date. However, credit institutions should endeavor to use it quickly. Thus, if the date of invoking the resolution is December 1, 2020, then the resolution plan must be implemented before February 28, 2021, specify the guidelines.
  4. What are the loan redesign options that your bank can offer you?
    In accordance with the guidelines, resolution plans offered by a bank to an individual borrower may include rescheduling payments, converting any accrued or accrued interest into another credit facility, or granting a moratorium, on the basis for an assessment of the borrower’s income streams, subject to a maximum of two years. As a result, the overall tenor of the loan may also be changed accordingly. The moratorium period, if granted, will come into effect upon implementation of the resolution plan.
  5. Other conditions to be fulfilled
    However, the resolution plan is only deemed to be implemented if all of the following conditions are met: a. all related documentation, including the execution of the necessary agreements between the credit institutions and the borrower and the guarantees provided, if any, are completed by the lenders concerned in accordance with the resolution plan implemented; b. changes in loan conditions are duly reflected in the books of credit institutions; and C. the borrower is not in default with the lending institution under the revised terms. Any resolution plan implemented in violation of the timetable stipulated above will be fully governed by the prudential framework or the relevant instructions applicable to a specific category of credit institutions for which the prudential framework is not applicable.

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