To help those borrowers who have been finding it difficult to pay back loans, the central bank lent a helping hand in the form of loan restructuring.
In 2020, the Reserve Bank of India (RBI) had announced a loan restructuring program. And then in May 2021, due to the second wave of Covid-19, it announced a second resolution framework for many borrowers including individual borrowers.
The country’s largest public sector lender,
(SBI) has released the guidelines adopted by the bank with regard to implementation of the Resolution Framework 2.0 for Covid19 related stress on its website. Here is a look at SBI’s Resolution Framework 2.0 for Covid19 related stress (personal loans and business loans), according to the bank’s website.
The following Loans given to individuals:
a) i. Housing Loans and other related loans
ii. Education Loans
iii. Auto loans (other than loans for commercial use)
iv. All variants of Personal Loan – Xpress Credit etc.
b) Loans for Business Purpose to individuals (with aggregate exposure by lending institutions of not more than Rs.50 crores as on 31.03.2021).
c) Loans to Small Business including those engaged in retail and wholesale trade (non-MSME) (with aggregate exposure by lending institutions of not more than Rs.50 crores as on 31.03.2021). Loans under e-DFS and eVFS (provided they are non MSME) will also be covered under this Framework.
d) Accounts under above categories should be classified as Standard as on 31.03.2021. Accounts classified as SMA -0, SMA1 and SMA2 as on March 31, 2021 are eligible.
a) MSME borrowers whose aggregate exposure to lending institutions collectively, is Rs.50 crore or less as on 31.03.2021.
b) Farm credit as listed in Paragraph 6.1 of RBI Master Direction FIDD.CO.Plan.1/04.09.01/2016-17 dated July 7, 2016 (as updated from time to time)
c) Loans to Primary Agricultural Credit Societies (PACS), Farmers’ Service Societies (FSS) and Large-sized Adivasi Multi- Purpose Societies (LAMPS) for on-lending to agriculture.
d) Exposures to financial service providers including NBFCs. Financial service providers shall have the same meaning as in sub-section (17) of Section 3 of the Insolvency and Bankruptcy Act, 2016.
e) Exposures to Central and State Governments; Local Government bodies (e.g., Municipal Corporations); and body corporates established by an Act of Parliament or State Legislature.
f) Loans sanctioned to staff / banks employees.
Borrower accounts who have availed of any resolution in terms of the Resolution Framework – 1.0* subject to undernoted exemption:
A. In cases of loans of borrowers where resolution plans had been implemented in terms of the Resolution Framework – 1.0, and where the resolution plans had permitted no moratoria or moratoria of less than two years and / or extension of residual tenor by a period of less than two years, operating units are permitted under this Framework.
i. to modify such plans only to the extent of increasing the period of moratorium / extension of residual tenor subject to cap of 2 years and the consequent changes necessary in the terms of the loan for implementing such extension.
ii. The overall caps on moratorium and / or extension of residual tenor granted under Resolution Framework – 1.0 and this framework combined, shall be two years.
iii. The modifications shall follow the timelines as mentioned above under this Framework.
iv. Asset Classification and Provisioning Norms as applicable under Resolution Framework 1.00 will apply.
B. Working Capital Loan for Small Businesses resolved under Resolution Framework 1.00 (Clause-9 of this Policy)
Eligible borrowers/ documentary evidence required to ascertain borrower’s eligibility:
A. For Personal (non-business) Loans:
a) The operating units to ensure that this facility is extended only in those cases where stress is on account of COVID-19 related issues like:
i. Reduction in salary/income
ii. Reduction/suspension in salary during lockdown period
iii. Job Loss/closure of business
iv. Closure during lockdown/reduced activity of units/shops/business establishments in case of self-employed/professionals/businessmen
v. Other instances where income streams/cash flow of borrowers is adversely affected on account of lockdown and other COVID-19 related issues.
vi. No reduction in salary/income but the borrower/family member has been affected by Covid-19 and has incurred substantial expenditure on treatment of Covid-19.
b) The facility will be offered to the borrowers on request
Application on the format approved for Resolution Framework 1.00 (having undertaking that they have been affected by COVID-19) – (Available to customers on the digital platform mentioned in g. below).
d) Documentary proof in the form of salary slips for pre COVID-19 period (i.e Feb 2020) and current salary slip to be obtained.
e) Letter of termination/discharge from job (in case of job loss)
f) Simple Declaration needs to be obtained from the self-employed professionals/ businessmen declaring that their business is affected by COVID-19.
g) A digital platform will be hosted on our website (as used for Covid Resolution Framework-1.00) for the customers to enable them to ascertain their tentative eligibility and apply online (including submission of documentary evidence) for the relief under this framework. This will include validation of the borrower by way of OTP which will be sent to his registered mobile no and mail id.
h) Customers shall also have the option to apply for relief under the package by visiting their home branches. The branches will use the digital platform to feed the details of customer’s request.
i) Respective Business Units (PBBU/REHBU) to devise a suitable mechanism or use the mechanism used under Covid Resolution Framework-1.00 for handling such requests at the branches.
The reference date for the outstanding amount of debt that shall be considered for the resolution shall be 31 March 2021.
a) The date on which Bank conveys to the Borrower, based on the application made, that Bank, in-principle, is agreeable to implement the resolution package, will be the date of invocation.
b) In respect of applications received by the operating units from their borrowers for invoking resolution process under this Framework, the assessment of eligibility for resolution as per the instructions contained in this Policy shall be completed, and the decision on the application shall be communicated in writing to the applicant within 30 days of receipt of such applications.
c) Resolution under this framework can be invoked not later than 30.09.2021. d) If there are multiple lending institutions with exposure to the borrower, the decision to invoke the Resolution Process under this Framework shall be taken by each lending institution independently.
Timeline for implementation of resolution plan (RP):
The resolution plan should be finalised and implemented within 90 days from the date of invocation of the resolution process under this window.
Scope of resolution plan:
For Personal (Non-Business) Loans:
a) Moratorium of up to 24 months may be extended to borrowers whose income has been impacted.
b) Rescheduling of instalments and extension of tenure by a period equivalent to a maximum of 2 years (inclusive of moratorium period).
c) LTV ratio shall not be more than 95% for Home Loan borrowers.
d) EMI/NMI ratio (post-moratorium) not to exceed 70%. The EMI/NMI ratio shall be computed based on revised EMI and current income or estimated income at the end of the moratorium.
e) Where Job Loss is involved, one of the parameters for estimating future income of the borrowers should be their average income for last 3 years.
f) The moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan.
g) The repayment shall start immediately after the moratorium period.
h) The Bank shall have to make additional provisions under this framework.
The additional cost of provisions is worked out at 70 bps p.a. In order to reduce the burden on borrowers, it is proposed to charge only 50% i.e. 35 bps as additional interest on all the loans considered under this framework, remaining 50% will be absorbed by the Bank. However, in respect of Home Loans up to Rs.30 lacs, and other loans up to Rs.10 lacs, no additional interest will be charged, and the entire cost of provisioning will be borne by the Bank.
i) Compromise settlements are not permitted as a Resolution Plan under this Framework.
Implementation conditions for resolution plan:
The resolution plan shall be deemed to be implemented only if all of the following conditions are met:
a) All related documentation, including execution of necessary agreements between the Bank and the borrower and creation of charge on collaterals provided, if any, are completed in consonance with the resolution plan being implemented.
b) Post-implementation of the package, the accounts of the borrower should continue to be Standard.
c) Any resolution plan implemented in breach of the above stipulated timeline / framework shall be fully governed by the Prudential Framework for Resolution of Stressed Assets issued on 7th June 2019
The form to be used to apply for the loan restructuring can be accessed hereInternet Explorer Channel Network