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Loan Restructuring RBI Resolution Framework 2.0 | Avail Moratorium of up to two years if unable to repay your Loan due to Covid Curfew



RBI on 05th may 2021 has announced Resolution Framework 2.0 for individual borrowers, small businesses, and MSMEs. RBI has made several announcements to tackle the second wave of the pandemic that’s has hit our country. The key announcement was regarding Resolution Framework 2.0.  RBI announced the framework under which loans can be restructured during this difficult time.

The second wave of the pandemic has hurt many businesses and salaried class people as well. Many of the people have lost their jobs and many of the businesses are shut down due to the pandemics and the ongoing curfews and lockdown situation. In this condition, people may find it difficult to continue the repayment of their loans.  Hence the resolution framework is much-needed support from RBI.

The RBI has released a detailed circular on 05th May 2021 as Resolution Framework 2.0 – Resolution of Covid-19 related stress of Individual and Small Businesses.

The RBI has not opened any window for a blanket moratorium for loans this time as it did in previous Resolution Framework 1.0. However, it has made an option to avail a moratorium period of up to two years through restructuring of their loans i.e. revising the repayment schedule. The overburdened borrower may feel this as a big relief from the central bank.

Who can avail moratorium?

Individuals with loan exposure of less than Rs. 25.00 crores as of 31st March 2021. The loan should have been classified as standard as of 31st March 2021. The borrowers may apply for restructuring up to 30th September 2021 and the same shall have to be implemented within 90 days from application. Borrowers who have not availed of the facility under Restructuring framework 1.0 are permitted to take a moratorium period of up to two years.

Those who have already availed of the moratorium under Resolution Framework 1.0 may also apply this time but the total moratorium of resolution framework 1.0 and 2.0 shall not exceed 24 months.  The extension of the residual tenor of the loan facilities may also be granted to borrowers subject to, the overall cap on the extension of residual tenor, inclusive of the moratorium period should not exceed two years.  

Suppose you have availed the facility under Resolution framework 1.0 and availed a moratorium period of 6 months and the loan tenor increased by 4 more months after the loan gets restructured.  The total restructuring period comes to 10 months. Now you can again avail of restructuring under the resolution framework 2.0 for 14 more months.

The borrowers may apply for restructuring up to 30th September 2021 and the same shall have to be implemented within 90 days from application.


Should you opt for it?

The terms of the restructuring will be decided by the bank. The bank may also charge an increased rate of interest on the loan being restructured. Whether or not the residual tenor of the loan can be increased will be assessed by the bank. The banks will also exchange the terms of the agreement as per the revised loan with the borrower.

If the pandemic has really affected your income and you find it difficult to repay your loan, then you can proceed to avail of it. Otherwise, it will only increase the interest on your loan amount. Also, the CIBIL report may show the status of your loans as ‘Restructured’ which may affect your credit score.

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