Banks led by State Bank of India are offering a moratorium of two years to retail investors who have taken home, education, auto or personal loans under the loan restructuring policy approved by the Reserve Bank of India (RBI). However, interest will be applied during the two-year period, and there will be additional interest of 0.35 per cent per annum. While SBI was the first off the block with its recast plan for Covid-hit retail borrowers, other public sector banks are gearing up to offer similar products in the coming days.
What are the reliefs available under the recast framework?
The relaxations under the framework, subject to compliance of bank norms, include moratorium of up to a maximum of 24 months, rescheduling of instalments, and extension of tenure by a period equivalent to the moratorium granted subject to a maximum of 2 years, SBI says.
During the moratorium period, borrowers don’t have to pay EMIs on the loan. Interest will be applied during the moratorium period. The moratorium sanctioned under the framework will be in addition to the moratorium granted by the bank earlier. If the borrowers have surplus cash during the moratorium, they can pay EMIs during the moratorium. This will help in reducing the interest amount. The borrower is not eligible for additional loan facilities under the framework.
Will there be any change in EMI after the loan recast?
The tenure of the loan will be extended by the period of the moratorium and the EMI payable after the moratorium will be recalculated and advised to the customers.
Will there be any change in pricing of the loan?
Borrowers will be required to pay additional interest of 0.35 per cent per annum over and above their current pricing for the remaining tenure of the loan, SBI says. This is to offset the partial cost of additional provisions required to be made by the bank.
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SBI branch in Darjeeling (Express photo by Partha Paul)
Who is eligible for loan restructuring?
A retail borrower will be considered as affected by the Covid-19 pandemic if any of the following conditions are fulfilled:
* Her/his salary or income in August 2020 has got reduced when compared to February 2020;
* Reduction or suspension in salary during the lockdown period and job loss or closure of business.
* Closures during lockdown or reduced activity of units or shops or business establishments in the case of self-employed, professionals and businessmen are also considered.
To be eligible under the recast framework, the following eligibility conditions need to be fulfilled:
* The retail loan should be a “standard account” as on the date of application for relief under this framework; and
* It should have been “standard” and not in default for more than 30 days as on March 1, 2020.
“The customers can check their eligibility for the restructuring of their loans through this portal (www.sbi.co.in) sitting at their home/office or from anywhere as per their convenience and comfort,” said CS Setty, Managing Director (Retail & Digital Banking), SBI.
“The main criteria is whether the borrower is impacted by Covid pandemic,” he said.
Which are the loans covered under this framework?
Retail loans including housing and other related loans, education loans, auto loans (other than loans for commercial use) and personal loans are eligible for restructuring.
What is the maximum age up to which the tenor of the loan can be extended?
SBI says this is product specific.
For example, in the case of home loan, the tenure of the loan can be extended up to a maximum of 24 months or till the primary borrower attains 77 years of age, whichever is earlier. In any case, the tenure of the loan can be extended only up to maximum 24 months under this framework for Covid-19 related stress.
The last date to apply for relief under the framework is December 24, 2020.
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Pedestrians walk past a State Bank of India Ltd. (SBI) branch in Mumbai (Photographer: Dhiraj Singh/Bloomberg)
What are the documents required to apply for loan recast?
According to SBI, copies of the following documents need to be uploaded (if applying online) or submitted along with the application form at the home branch:
* Salary slips for the month of February 2020 and the current/latest salary slip;
* A declaration of estimated salary/income immediately after the end of the desired moratorium period (maximum 24 months);
* Letter of discharge from job (in the case of job loss);
* Account statements of the account where salary is credited in the case of salaried employees or,
* Statement of operating account in the case of businessmen/ self-employed/ professionals for the period February 2020 till 15 days prior to submission of application and declaration by self-employed professionals/businessmen declaring that their business is affected by Covid-19.
Is a borrower eligible for restructuring of multiple loan accounts?
SBI says she/he can apply for relief under the framework in more than one account. If one of his loan accounts at SBI is irregular for more than 30 days as on March 1, 2020, other loan accounts which were standard and met the eligibility criteria would be eligible for relief under this framework.
However, the customer’s eligibility for a new loan will depend on the prescribed eligibility norms for the respective loan scheme of the bank as applicable from time to time.
How does retail recast compare with corporate loan recast okayed by the RBI?
The retail loan restructuring is on liberal terms when compared to the corporate loan recast plan recommended by the KV Kamath Committee. The RBI has broadly accepted the Committee’s recommendation to take into account five specific financial ratios and sector-specific thresholds for each ratio in respect of 26 sectors while finalising the resolution plans.
The process is complicated as signing of Inter-Creditor Agreement (ICA) is a mandatory requirement for all lending institutions in all cases involving multiple lending institutions, where the resolution process is invoked.