While the Reserve Bank of India (RBI) did not announce a blanket moratorium, stressed borrowers have been given a choice to opt for resolution if required.
The central bank said that it will allow loan restructuring for individual and small businesses hit hard by the fresh COVID-19 wave. According to the central bank, the borrowers that are individuals and micro, small and medium enterprises (MSMEs) having aggregate exposure of up to Rs 25 crore would be considered for the new scheme.
This will be applicable to individual borrowers who have not availed of restructuring under any of the earlier restructuring frameworks, and who were classified as ‘standard’ (loans) as of March 31, 2021.
For individual borrowers and small businesses who had availed restructuring of their loans under Resolution Framework 1.0, and in which the resolution plan permitted a moratorium of less than two years, banks and NBFCs have been permitted to use this window to modify such plans to the extent of increasing the period of the moratorium and/or extending the residual tenor up to a total of two years.
Under the proposed framework, the bank may be invoked up to September 30 and shall have to be implemented within 90 days after invocation.
According to industry experts, this comes as a great relief.
Madhusudan Ekambaram, Co-Founder & CEO, KreditBee and Co-Founder, FACE calls this welcoming move the need of the hour since individuals and businesses have been gravely affected by the pandemic’s second wave and lockdown-like situations, resulting in acute economic stress on states.
“The RBI’s decision will provide the necessary headroom to the financial institutions to effectively re-evaluate their working capital and will work towards positively impacting the general sentiment in the economy,” he affirms.
Nish Bhatt, Founder & CEO, Millwood Kane International also believes that MSMEs and individuals borrowers will benefit from the extension in the moratorium.
Anshuman Panwar, Co-Founder, Creditas Solutions further states that the relief will ensure that only those who genuinely need the restructuring of their loans will approach the banks. At the same time, it will help counter financial stress in the system.
As an integral part of India’s banking system with technology-led delinquency management, experts say that individual borrowers should go for timely payments and opt for resolution mechanisms only if required, as mandated by RBI.
It must be noted that the RBI in 2020 allowed all lending institutions to allow borrowers to put off repayment of term loans for six months (March to August). That moratorium applied to all categories of borrowers.
However, this time, there is no such relief.