Moratorium and RBI
Moratorium On Loans
One Time restructuring of loans
What is the difference between moratorium and the restructuring.
Restructuring or rephrasing of a loan is a different nomenclature used to the moratorium of instalments and interest with a slight difference.
In other words, the subjects are not in a position to adhere to the schedule of repayment due to happening of some eventualities not expected and probably not insulated in assessing the proposal.
In this case, it should not be included eventualities like pandemic situations or wars or earthquake.
Otherwise, the assessment of profit generation or cash flow might have gone wrong and that is why the borrower struggles to adhere to the schedule of repayment. The subjects might have projected very much ambitious sales projections without taking into account the capacity in all respects says the machine, labour etc.
Though it had been projected, it has been accepted by the credit processing officer, without any influence or pressure from the higher-ups, then his approach is not pragmatic and practical, without verifying the velocity of the figures and statement submitted.
All said and done is that something has gone wrong and it necessitates to defer the repayment for some period like the initial holiday period, is a moratorium.
And instead of allowing some holiday period, a complete reassessment of the all the figures originally submitted is made to find out what and where it has been mistaken or something has gone wrong . On the basis of the reassessed statement and figures submitted, the repayment of the installments, according to the cash generation made recently is fixed. The processing of reworking is called restructuring.
If the real purpose of restructuring is genuine in the sense that the rephrasing will help to survive the unit then it is fine. If not just to keep the asset evergreen then it is meer postponement of NPA.
This kind of assessment, while fixing EMI of clean loan or personal loan, is made taking into account all the eventualities social status and family status and the children's education like that.
Initially, when the clean loan concept was introduced three months installments were collected anticipating the eventualities but subsequently due to the competition it was not followed.
Normally the above question that whether the borrower has adequate provision has been built in, in case of eventualities, is invariably raised or asked while interviewing the borrower but the answer will not be genuine.
The credit processing officer is not supposed to verify the velocity of the statement as in the case of margin for a home loan.
The system and procedures, rules and regulations are there but scant respect is given. Further, who is a systematic and strict follower of the rules and procedures are branded as impractical processing officer.
Let us have a look at the impact of the restructuring or rephrasing of the installments.
Once restructured, such loans would be considered as standard. This means that the lenders won’t report the borrower as a defaulter to credit bureaus if the borrower follows the new payment structure.
In his speech, RBI governor Shaktikanta Das, said, “The disruptions caused by COVID-19 have led to heightened financial stress for borrowers across the board… Accordingly, it has been decided to provide a window under the 7 June Prudential Framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures—without a change in ownership—as well as personal loans, while classifying such exposures as standard assets, subject to specified conditions."
Personal loans include those given to individuals and include consumer credit, education loan, loans given for creation or enhancement of immovable assets (housing loan, for example), and loans given for investment in financial assets (shares, debentures, and so on), according to RBI.
As per RBI’s Resolution Framework for COVID-19-related Stress, the resolution for only stressed loans will be available to those borrowers who were prompt in repaying their loans regularly as on 1 March 2020.
Borrowers will need to submit restructured plan sanctioned before 31 December and the lender will need to implement it within 90 days. The restructured loan will continue to be considered as standard till the borrower sticks to the repayment plan.
2. The overall tenure of the loan can also be modified based on the restructuring submitted. In other words, if the salary cut is so severe and the expected cash flow is very meagre then the lender can very much reduce the EMI and accordingly the tenure of the loan can be extended.
According to the chief economist, CARE Ratings, banks may have a filtering mechanism and a criterion to decide who gets the resolution plan.
Because it is very difficult to offer rephrasing to retail customers as compared to industrial borrowers. Lenders have to be very discreet and practical in accepting the restructured repayment plan based on the facts of the individual case, who have suffered very much on their finances
In other words, the subjects are not in a position to adhere to the schedule of repayment due to happening of some eventualities not expected and probably not insulated in assessing the proposal.
In this case, it should not be included eventualities like pandemic situations or wars or earthquake.
Otherwise, the assessment of profit generation or cash flow might have gone wrong and that is why the borrower struggles to adhere to the schedule of repayment. The subjects might have projected very much ambitious sales projections without taking into account the capacity in all respects says the machine, labour etc.
Though it had been projected, it has been accepted by the credit processing officer, without any influence or pressure from the higher-ups, then his approach is not pragmatic and practical, without verifying the velocity of the figures and statement submitted.
All said and done is that something has gone wrong and it necessitates to defer the repayment for some period like the initial holiday period, is a moratorium.
And instead of allowing some holiday period, a complete reassessment of the all the figures originally submitted is made to find out what and where it has been mistaken or something has gone wrong . On the basis of the reassessed statement and figures submitted, the repayment of the installments, according to the cash generation made recently is fixed. The processing of reworking is called restructuring.
If the real purpose of restructuring is genuine in the sense that the rephrasing will help to survive the unit then it is fine. If not just to keep the asset evergreen then it is meer postponement of NPA.
This kind of assessment, while fixing EMI of clean loan or personal loan, is made taking into account all the eventualities social status and family status and the children's education like that.
Initially, when the clean loan concept was introduced three months installments were collected anticipating the eventualities but subsequently due to the competition it was not followed.
Normally the above question that whether the borrower has adequate provision has been built in, in case of eventualities, is invariably raised or asked while interviewing the borrower but the answer will not be genuine.
The credit processing officer is not supposed to verify the velocity of the statement as in the case of margin for a home loan.
The system and procedures, rules and regulations are there but scant respect is given. Further, who is a systematic and strict follower of the rules and procedures are branded as impractical processing officer.
Let us have a look at the impact of the restructuring or rephrasing of the installments.
Once restructured, such loans would be considered as standard. This means that the lenders won’t report the borrower as a defaulter to credit bureaus if the borrower follows the new payment structure.
In his speech, RBI governor Shaktikanta Das, said, “The disruptions caused by COVID-19 have led to heightened financial stress for borrowers across the board… Accordingly, it has been decided to provide a window under the 7 June Prudential Framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures—without a change in ownership—as well as personal loans, while classifying such exposures as standard assets, subject to specified conditions."
Personal loans include those given to individuals and include consumer credit, education loan, loans given for creation or enhancement of immovable assets (housing loan, for example), and loans given for investment in financial assets (shares, debentures, and so on), according to RBI.
As per RBI’s Resolution Framework for COVID-19-related Stress, the resolution for only stressed loans will be available to those borrowers who were prompt in repaying their loans regularly as on 1 March 2020.
Borrowers will need to submit restructured plan sanctioned before 31 December and the lender will need to implement it within 90 days. The restructured loan will continue to be considered as standard till the borrower sticks to the repayment plan.
RBI has also covered the facilities banks can offer to borrowers when restructuring the loan.
1. They can reschedule the payments, convert interest into another credit facility, and provide moratorium of up to two years.2. The overall tenure of the loan can also be modified based on the restructuring submitted. In other words, if the salary cut is so severe and the expected cash flow is very meagre then the lender can very much reduce the EMI and accordingly the tenure of the loan can be extended.
According to the chief economist, CARE Ratings, banks may have a filtering mechanism and a criterion to decide who gets the resolution plan.
Because it is very difficult to offer rephrasing to retail customers as compared to industrial borrowers. Lenders have to be very discreet and practical in accepting the restructured repayment plan based on the facts of the individual case, who have suffered very much on their finances
RBI moratorium on loans
Moratorium can't be extended with out a time limit . Hence the Reserve Bank of India (RBI) did not extend the moratorium in its monetary policy review, instead it allowed banks to restructure the loans of borrowers who are in financial difficulty and are unable to repay them.
CIBIL SCORE / CREDIT SCORE
Missing repayments and the respective cut-off dates haunts you and your CIBIL Score, this is a general fact. Under the COVID alleviation package, however, your credit score records will no longer be tarnished by means of non-payment and your deposit rating will now not be impacted. This must come as a huge comfort mainly to self-employed humans who ought to be underneath severe monetary stress due to the lockdown.
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