Looking to restructure your loan? Here’s what you need to know

Loan restructuring refers to the modification of the terms and conditions of an existing loan to help borrowers facing financial difficulties manage their repayments. This process is often initiated when a borrower is struggling to meet the original loan obligations due to unforeseen circumstances such as a loss of income, economic downturn, or significant financial pressure.

By restructuring a loan, the lender may offer various forms of relief, such as extending the loan tenure, reducing the interest rate, converting overdue interest into the principal, or even offering a temporary moratorium on payments. This is done to ease the borrower’s financial burden while ensuring the lender eventually recovers the loaned amount.

Loan restructuring can be beneficial for both the borrower and the lender. The borrower gains flexibility and avoids defaulting on the loan, while the lender minimises the risk of non-repayment. It is important to note, however, that restructuring might have long-term financial implications, such as increased overall interest payable due to extended repayment periods.

This process is often implemented during financial crises or as part of regulatory measures by central banks to support economic recovery.

Bajaj Finserv loan restructuring

As per the RBI guidelines on the resolution framework for COVID-19 related stress issued on 5 May 2021, Bajaj Finance has provided a one-time resolution plan to customers who approach them to avail it. This plan is subject to the conditions specified in the Resolution Framework 2.0: Resolution of COVID-19 related stress of individuals and small businesses, as mentioned in the reference DOR.STR.REC.11/21.04.048/2021-22, dated 5 May 2021.

To be eligible for the resolution plan, the customer should have been classified as 'Standard' (meaning no delinquent history with loans) as of 31 March 2021. The details regarding this can be found on the Bajaj Finance website, specifically in the policy on resolution framework 2.0 for COVID-19-related stress and loan restructuring FAQs 2021. It's important to note that the RBI announced that loan restructurings would be available until 30 September 2021.

Bajaj Finance reviews the loan restructuring requests of eligible customers based on the impact of COVID-19 and guidance from the RBI and Bajaj Finance Limited's policy. However, it's worth noting that as per RBI's guidelines, the deadline for availing of this facility was 30 September 2021. Therefore, no further restructuring can be offered under the RBI's restructuring scheme. If you have concerns or grievances related to loan cancellation, you can find information about loan cancellation grievances on their website.

• Bajaj Finserv customer service portal
• Bajaj Finserv app
• Raise a request

RBI loan restructuring scheme

The RBI Loan Restructuring Scheme is a regulatory initiative introduced by the Reserve Bank of India (RBI) to help borrowers affected by economic disruptions, particularly during times of crisis, such as the COVID-19 pandemic. This scheme allows eligible borrowers to restructure their loans without being classified as defaulters, thus helping both individuals and businesses manage their repayment obligations more effectively.

Key features of the RBI loan restructuring scheme

1. Eligibility: Borrowers who have been financially impacted and whose loan accounts were classified as “standard” before a specified cut-off date are eligible for restructuring. This scheme applies to various types of loans, including personal, home, and business loans.
2. Loan tenure extension: Borrowers can request an extension of the loan tenure for a maximum of two years. This can result in lower monthly instalments, making it easier for borrowers to meet their repayment obligations without defaulting.
3. Moratorium period: Under the scheme, borrowers can avail themselves of a moratorium period during which no payments are required. This provides temporary relief, allowing borrowers to stabilise their finances.
4. No adverse credit impact: The restructuring of loans under this scheme does not negatively affect the borrower’s credit score, as long as the new terms are adhered to.
5. Application process: Borrowers must apply for loan restructuring through their lending institutions within the given timeline. The lenders will then assess the borrower’s financial condition and offer appropriate restructuring options.

Benefits of the scheme

• Helps borrowers avoid default during financial hardship.
• Offers flexibility with repayment terms.
• Enables businesses to continue operations by easing financial pressure.

The RBI Loan Restructuring Scheme is a valuable tool for managing debt during challenging economic times, ensuring stability for both borrowers and lenders.

Pros and cons of loan restructuring

1. Prevents loan default:
   Loan restructuring helps borrowers avoid defaulting on their loans by adjusting repayment terms. This can protect their credit rating and avoid legal actions from lenders.
2. Reduced monthly payments:
   By extending the loan tenure or reducing the interest rate, borrowers can benefit from lower monthly instalments, making repayments more manageable.
3. Temporary relief during financial hardship:
   Borrowers facing temporary financial difficulties can benefit from restructuring by availing moratoriums or rescheduled repayments, giving them time to stabilise their finances.
4. Customised repayment plans:
   Lenders offer tailored repayment plans based on the borrower’s financial situation, allowing more flexibility in managing debt without completely altering the loan terms.
5. No immediate negative credit impact:
   If the restructuring is done with the lender’s approval and the borrower adheres to the new terms, it will not be reflected as a default on the borrower’s credit report, thus protecting their credit score.
6. Business continuity:For bu
   inesses, loan restructuring can provide the financial breathing space needed to continue operations without the burden of immediate loan repayments.

Cons of loan restructuring

1. Higher total interest:
   While restructuring may reduce the monthly burden, extending the loan tenure can result in higher overall interest costs, increasing the total amount repaid over time.
2. Credit risk in long term:
   Even though restructuring may not have an immediate negative impact on credit scores, multiple restructurings or failure to meet restructured terms may harm creditworthiness in the long run.
3. Not a permanent solution:
   Loan restructuring is a temporary fix, designed to provide short-term relief. It may not solve underlying financial issues, and borrowers could still struggle if their financial situation doesn't improve.
4. Potential increase in debt burden:
   Some forms of restructuring involve converting unpaid interest into the loan’s principal, which increases the borrower’s overall debt.
5. Limited eligibility:
   Not all borrowers qualify for loan restructuring, as the eligibility criteria often require that the loan be classified as “standard” or not overdue for an extended period before restructuring.

Loan restructuring offers financial relief but must be carefully evaluated to ensure it benefits the borrower in the long term.