This period of Corona is a situation of crisis for all. Locked down has been implemented in all the countries to protect against Corona. Due to the lockdown, everything stopped suddenly and people’s income was stalled.

The financial sector has been affected majorly due to stagnation in income. Loan distribution is the biggest reason for the financial sector is affected.

When the lockdown was announced, the moratorium was also provided on loan installments to provide immediate relief to the people.

Due to the convenience of the moratorium, the people and business borrowers got relief from paying the EMI of the loan during this period and deferred it for a later date. But for the lending bank and NBFC, many challenges have arisen due to the non-return of money from the market.

However, now the lockdown is being phased out and the process of un-locking is going on in the country but it is also a fact that the Corona crisis is not completely averted and the people were still demanding a moratorium on loan and if the moratorium time is extended, it will directly affect the Indian economy.

To support the economy and the financial institutions, a loan restructuring facility has been provided by the Central Government on behalf of the loan moratorium facility.

The loan restructuring facility will benefit both the financial institution and the customers. Let us explain in this article what is loan restructuring and who will benefit from it.

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What is Loan Restructuring?

Restructuring means remodeling and Loan restructuring means remodeling of the loan terms which simply means changing the existing terms of the loan. In loan restructuring, the customer gets more time to repay the loan as well as the interest amount to the financial institutions. This situation is advantageous to both the customer and the financial institutions.

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What Facility is Available in Loan Restructuring?

The corona epidemic has created difficult situations in front of the people as it has affected people’s ability to pay back their debts. But for those people whose income has not been affected due to lockdown should not avail of moratorium or loan restructuring.

The option of loan restructuring is done by the financial institutions at the very end when there seems to be a risk of the defaulter. There are mainly two facilities in loan restructuring.

  1. The loan repayment period can be increased in restructuring.
  2. The loan company or bank can change the frequency of interest liability under the pre-determined conditions.

Loan Restructuring Can be Explained With an Example

Suppose Rahul runs a general store and he has taken a business loan of Rs 5 lakh for his business for 2 years. The EMI of the business loan is Rs 25000. Rahul’s general store continued during the lockdown & due to which his income was not affected. As the income was not affected during this time, hence Rahul can deposit his business loan EMI with ease. In this way, Rahul’s business loan will expire on time.

There is another businessman named Shashank. Shashank is into the hotel business. Shashank has also taken a business loan of Rs 5 lakh for 2 years. The EMI of the business loan is Rs 25000. Shashank’s hotel was closed during the lockdown due to which Shashank’s income was affected and he could not deposit the EMI of his business loan on time.

When Shashank will not deposit the business loan EMI of Rs 25000, then Shashank will become a defaulter in the eyes of the financial company and legal action will be initiated on Shashank. But by taking advantage of the loan restructuring facility, Shashank increases his business loan tenure from 2 years to 4 years, then the EMI of Rahul’s business loan will be Rs 12500. In this way, it will become easier for Shashank to pay his loan.

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Benefits of Loan Restructuring

  • Delay repayment of interest & principal amount with easy terms & conditions
  • The measure will help address the immediate revenue loss of the small business
  • Major relief to the lenders as the chances of default reduces
  • Reduction of risk of financial instability to the overall economy.

The central bank has taken note of recommendations from all the banks and has started assessing the sectors that will be picked up for the loan restructuring, some of which are hospitality, tourism, aviation and construction, etc.

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