CIBIL

The COVID-19 pandemic and the lockdown led to an economic fallout of the entire humanity. Schools and colleges were closed for an indefinite period, people were forced to work from home, businesses shut down completely, and everyone was homebound except for front-line workers, doctors, nurses, and the security forces.

This led to many people losing their jobs and, in some cases, pay cuts. There is little, or no hope left among the millions of debtors in the country. As a measure to provide relief to loan borrowers, RBI has come up with the idea of loan restructuring. To implement these resolution plans, it has provided a general structure to banks and non-banking financial companies. The main reason for implementing such a restructuring is to offer aid to borrowers whose income has been affected due to the pandemic.

The loan restructuring option is for all the customers who have taken loans from a Non-Banking Financial Company (NBFC).

RBI’s loan restructuring plan includes:

  • ‌Rescheduling of the loan period.
  • ‌The interest rate charged, or any extra money taken would be added to the ongoing loan.
  • ‌A moratorium of 2 years at maximum in extreme cases.
  • ‌Restructuring your loan will cover aspects related to leverage, liquidity, debt serviceability, etc.

How to check if you are eligible for loan restructuring?

  • The applicant must not have any dues pending as on Mar 01, 2020, or unpaid interest for less than 30 days (89 days for MSME customers).
  • Income should have been impacted because of the COVID-19 pandemic.
  • The applicant’s credit report and repayment history should match the eligibility as per the regulatory guidelines for one-time loan restructuring provided by the RBI.
  • The applicant must be a borrower for a period of more than 30 days as of March 01, 2020, i.e., he/she must have a loan applied as early as 28th January 2020.

The Loan Restructuring scheme by RBI comes as a huge relief for people who have been financially affected by the lockdown and are unable to pay off their loan EMIs on time.

Restructuring the loan is an easy process, and one can do it online through the lender’s website or call their customer care executive. The executive will let the applicant know if he is eligible for the above-mentioned service and the process to get it done.

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However, if the income is not much affected and the individual is able to pay off on time, he should not apply for loan restructuring. As it can be a lengthy procedure, the one or two-year duration loans can expand upto four or five years, making it a complex matter. Those who want to restructure their loans, but have second thoughts about it, can sit with their agent and ask about the details and charges that they will incur.

Impact on the credit score

Although this offer can be considered a much-needed relief for borrowers struggling to pay off the EMIs on time. But one must remember everything comes with a price so is loan restructuring, and it is bound to have long-term adverse effects on the borrower’s financial future. For instance, loans given for restructuring might be written in the credit reports as restructured that might affect the CIBIL score. So, your chances of getting another loan might be affected completely if you choose a restructured loan.

Having a high CIBIL score (around 700) states that the debtor’s repaying capacity is high, and the person is experienced in managing the credit. Further, it also gives banks and NBFCs a good reason to offer low rate of interest loans to the borrower.  There are many online websites where an individual can check the CIBIL score and apply for an extra credit facility if the score is more than 700 or as directed by the lender. But having a lower CIBIL score states higher chances of defaulting; hence the lenders are reluctant to offer loans, and if they do, it has higher interest rates.

A bank stated that even if the borrowers want only one loan to be restructured, all of the loans will be considered restructured. For example, if one has taken a personal loan, car loan and home loan and has opted for a car loan to be restructured, then all three will be reported as restructured loans. Although the loan restructuring system is quite new, whether it will be affecting the CIBIL score or not is unknown. If the loan offering allows loan restructure, then it will be reported to the central agencies, and the credit report will be quoting ‘restructured,’ and it will impact the credit report. So, even if the loan restructuring may not directly affect the CIBIL score, it is affecting the chances of getting a loan.

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With the end of compulsory countrywide loan moratorium in August, the RBI has allowed banks and Non-Banking Finance Companies (NBFCs) to restructure loans of retail as well as corporate borrowers without classifying the loan as non-performing.

Banks are advised to offer a repayment moratorium, for up to two years, as a part of the restructuring exercise. It essentially means extending the repayment duration of an existing loan if the customer is facing financial difficulties.

Loan restructuring process

  • Fill an online form for the loan restructuring or visit the nearest branch office of the financial institution.
  • The lending institution will assess the application. After evaluation, the borrower is asked to submit the necessary documents.
  • Once the application, along with the documents, are verified, the financial institution will now check the repayment capacity under the requested restructuring plan. If the institution is satisfied, the application will be approved. Conversely, if the borrower’s repayment capability is doubtful or there are any discrepancies in the submitted documents, the application can be rejected.
  • The financial institution will discuss the terms of restructuring. If the borrower agrees to go ahead with the revised plan, he/she can receive an updated schedule.

The loan would be considered restructured only after the following procedure is completed. Until a formal notice, the borrower is expected to pay their current EMIs on time. A failure to pay interests before the application has been approved will be considered a default in payments. This could attract penalties such as late fines and credit reporting to bureaus etc. Which affects the overall credit score as recorded by CIBIL.

26 sectors for loan restructuring, as put forth by the RBI.

SectorsTOL /

ATNW

Total Debt /

EBITDA

Current

Ratio

Average

DSCR

DSCR
Auto Components<= 4.50<= 4.50>= 1.00>= 1.20>= 1.00
Auto Dealership<= 4.00<= 5.00>= 1.00>= 1.20>= 1.00
Automobile Manufacturing*<= 4.00<= 4.00        –>= 1.20>= 1.00
Aviation*<= 6.00<= 5.50>= 0.40
Building Materials – Tiles<= 4.00<= 4.00>= 1.00>= 1.20>= 1.00
Cement<= 3.00<= 4.00>= 1.00>= 1.20>= 1.00
Chemicals<= 3.00<= 4.00>= 1.00>= 1.20>= 1.00
Construction<= 4.00<= 4.75>= 1.00>= 1.20>= 1.00
Consumer Durables / FMCG<= 3.00<= 4.00>= 1.00>= 1.20>= 1.00
Corporate Retails Outlets<= 4.50<= 5.00>= 1.00>= 1.20>= 1.00
Gems & Jewelry<= 3.50<= 5.00>= 1.00>= 1.20>= 1.00
Hotel, Restaurants, Tourism<= 4.00<= 5.00>= 1.00>= 1.20>= 1.00
Iron &Steel Manufacturing<= 3.00<= 5.30>= 1.00>= 1.20>= 1.00
Logistics<= 3.00<= 5.00>= 1.00>= 1.20>= 1.00
Mining<= 3.00<= 4.50>= 1.00>= 1.20>= 1.00
Non Ferrous Metals<= 3.00<= 4.50>= 1.00>= 1.20>= 1.00
Pharmaceuticals Manufacturing<= 3.50<= 4.00>= 1.00>= 1.20>= 1.00
Plastic Products Manufacturing<= 3.00<= 4.00>= 1.00>= 1.20>= 1.00
Port & Port Services<= 3.00<= 5.00>= 1.00>= 1.20>= 1.00
Power     
▪         Generation<= 4.00<= 6.00>= 1.00>= 1.20>= 1.00
▪         Transmission<= 4.00<= 6.00>= 1.00>= 1.20>= 1.00
▪         Distribution<= 3.00<= 6.00>= 1.00>= 1.20>= 1.00
Real Estate***     
▪         Residential <= 7.00<= 9.00>= 1.00>= 1.20>= 1.00
▪         Commercial<= 10.00<= 12.00>= 1.00>= 1.20>= 1.00
Roads***  >= 1.10>= 1.00
Shipping<= 3.00<= 5.50>= 1.00>= 1.20>= 1.00
Sugar<= 3.75<= 4.50>= 1.00>= 1.20>= 1.00
Textiles<= 3.50<= 5.50>= 1.00>= 1.20>= 1.00
Trading – Wholesale*****<= 4.00<= 6.00>= 1.00Instead, Interest Coverage

Ratio  >= 1.70

Others not specified aboveTo be decided by lenders>= 1.20>= 1.20

 

If an individual can pay off monthly EMIs by finding new sources of income or by managing the expenses, it is advised not to opt for the scheme needlessly. This is because an additional loan restructuring fee may be levied, adding to the cost. This increases the overall interest payable, thereby making the loan more expensive. The loan tenure is increased, making the individual pay interest for a longer time with extra expenses.

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