Many individual borrowers who went for moratorium due to the covid-19-induced liquidity crunch in the country may not opt for loan restructuring. Some of them are now able to repay loans while others took the moratorium fearing a financial crunch even though they didn’t face salary cuts or job losses.
Many banks, including the State Bank of India (SBI) and Federal Bank, have indicated that they do not expect a large number of borrowers to opt for the restructuring of loans.
“As of now (21 September) not many customers have approached our branches for loan restructuring. Of our total book, only 9% had availed of moratorium and, of these, some have subsequently started repaying their EMIs,” said C. S. Setty, managing director-retail and digital banking, SBI, in a recent conference.
A Federal Bank official expects the same. “We don’t think there will be many retail borrowers looking for restructuring, as some of those who availed of the moratorium have started repaying their loans,” said Babu K .A. , senior vice-president and head–loan collection and recovery, Federal Bank.
According to a survey from Paisabazaar, an online marketplace for financial products, 40% of the customers who took moratorium said that they can afford to pay their EMIs now. The company had surveyed 8,616 individuals, who have a debt outstanding of ₹1 lakh or more.
Of those who took the moratorium, 23% said that they had no negative impact on their income during the six-month period. They took the moratorium to preserve cash for an uncertain future.
Interestingly, of those who suffered 100% income loss, 23% did not opt for the moratorium. “This could be due to a large amount of savings and funds or lower EMIs that they could afford despite the income disruption,” according to the report.
According to the report, some of the borrowers who availed the moratorium may want to avail restructuring, but it may not be available to them. The loan recast is only available to those who can prove that their income has taken a hit due to covid-19.
The Reserve Bank of India had issued guidelines for loan restructuring—Resolution Framework for Covid-19-related Stress. Under these guidelines, the regulator has said that the bank should be diligent about customers who are receiving loan restructuring.
Many banks are, therefore, asking customers to provide salary slips, bank statements and other documents to prove that they had suffered income loss before sanctioning their loan recast. It is at the discretion of the bank to approve or reject the restructuring application.
If you can repay the loan despite the pay cut, don’t opt to restructure your loan. You will not only need to pay a fee to avail it, but your loan burden will also increase significantly. The interest that lenders will not charge you during the restructuring period (up to two years) will be added to the principal amount, and the financial institution will charge additional interest on it.
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