RBI okays one-time restructuring of loans: Know how it will impact your personal loan

New Delhi: The Reserve Bank of India in its Monetary Policy announced last week (August 6) noted that the disruptions caused by COVID-19 have led to increased financial stress for borrowers across the board, creating a huge challenge of their debt burden.

Accordingly, the Central Bank has to provide a window under the “June 7th Prudential Framework to enable lenders to implement a resolution plan in respect of eligible corporate exposures – without change in ownership – as well as personal loans, while classifying such exposures as standard assets, subject to specified conditions.”

For the personal loans borrowers, it must be understood that loans taken as gold loan, home loan, car loan, personal loan, education loan, loan against securities and consumer durable loan are categorised under the broad spectrum of “personal loans”.

The RBI said that the Prudential Framework on Resolution of Stressed Assets provides a principle-based resolution framework for addressing borrower defaults. Any resolution plan implemented under the Prudential Framework, which involves granting of any concessions on account of financial difficulty of the borrower, entails an asset classification downgrade except when accompanied by a change in ownership, subject to prescribed conditions.

Here is the impact that the RBI will have on your personal loans

The benefit will be extended to those borrowers who took the loan before March 31, 2020. Also these borrowers must not have not defaulted in paying any equated monthly instalment (EMI) till March 1, 2020.

RBI added that resolution under this 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.

Loan on Gold

As per extant guidelines, loans sanctioned by banks against pledge of gold ornaments and jewellery for non-agricultural purposes should not exceed 75 per cent of the value of gold ornaments and jewellery. RBI said, with a view to mitigating the impact of COVID-19 on households, it has been decided to increase the permissible loan to value ratio (LTV) for such loans to 90 per cent. This relaxation shall be available till March 31, 2021.