Recast of individual loans due to coronavirus: Who, how and when

The Reserve Bank of India (RBI) has issued guidelines for recast or resolution of loans taken by individual borrowers who are facing financial difficulties due to the Coronavirus pandemic. Banks have to formulate their own policies on recast of such loans on the basis of these guidelines. The guidelines clarify what kind of personal loans are covered and the types of resolution plans that can be offered to the borrowers by banks.

1. Which individual loans are eligible for such a revamp?
   The guidelines have clarified that banks can offer a recast for all personal loans which mean loans given to individuals and consist of (a) consumer credit, (b) education loan, (c) loans given for creation/ enhancement of immovable assets (e.g., housing, etc.), and (d) loans given for investment in financial assets (shares, debentures, etc.).Further, consumer credit includes the loans given to individuals, which consists of (a) loans for consumer durables, (b) credit card receivables, (c) auto loans (other than loans for commercial use), (d) personal loans secured by gold, gold jewellery, immovable property, fixed deposits (including FCNR(B)), shares and bonds, etc., (other than for business / commercial purposes), (e) personal loans to professionals (excluding loans for business purposes), and (f) loans given for other consumptions purposes (e.g., social ceremonies, etc.).
   
   
2. Which individual borrowers will be eligible for the recast of loan?
   As per the RBI guidelines, only those individual borrower accounts shall be eligible for resolution under this framework which were classified as standard, but not in default for more than 30 days with the lending institution as on March 1, 2020.Further, the eligible individual borrowers' accounts should continue to be classified as Standard till the date of invocation of resolution (i.e. the date on which resolution plans come into effect) under this framework. For this purpose, the date of invocation shall be the date on which both the borrower and lending institution have agreed to proceed with a resolution plan under this framework.Further, the guidelines mention that the lending institutions shall frame Board approved policies pertaining to implementation of viable resolution plans for eligible borrowers under this framework, ensuring that the resolution under this facility is provided only to the borrowers having stress on account of Covid19. The Board approved policy shall, inter alia, detail the eligibility of borrowers in respect of whom the lending institutions may be willing to consider the resolution, and shall lay down the due diligence considerations to be followed by the lending institutions to establish the necessity of implementing a resolution plan in respect of the concerned borrower.
3. What are the deadlines for this resolution plan?
   The guidelines also clarify that the resolution under the loan restructuring framework may be invoked not later than December 31, 2020, and must be implemented within 90 days from the date of invocation. However, the lending institutions should strive for early invocation. Thus, if the date of invocation of resolution is 1 December 2020, then the resolution plan must be implemented before February 28, 2021, state the guidelines.
4. What are the loan recast options that your bank may offer you?
   As per the guidelines, the resolution plans offered a by a bank to an individual borrower may include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of a moratorium, based on an assessment of income streams of the borrower, subject to a maximum of two years. Correspondingly, the overall tenor of the loan may also get modified commensurately. The moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan.
   
   
5. Other conditions that have to be met
   However, the resolution plan shall be deemed to be implemented only if all the following conditions are met: a. all related documentation, including execution of necessary agreements between lending institutions and borrower and collaterals provided, if any, are completed by the lenders concerned in consonance with the resolution plan being implemented;b. the changes in the terms of conditions of the loans get duly reflected in the books of the lending institutions; and,c. borrower is not in default with the lending institution as per the revised terms. Any resolution plan implemented in breach of the above stipulated timeline shall be fully governed by the Prudential Framework, or the relevant instructions as applicable to specific category of lending institutions where the Prudential Framework is not applicable.