The Reserve Bank of India (RBI), in a frequently asked questions (FAQs) for one-time restructuring (OTR), said outstanding debt on the date of invocation can be restructured under the regulatory scheme for borrowers facing financial stress due to the Covid-19 pandemic. With the FAQs, the RBI addressed a volley of queries on operational issues.
The RBI’s circular on OTR on August 6 had stated that the reference date for the outstanding amount of debt that may be considered for resolution will be March 1, 2020.
Bankers said many changes occurred in about seven months, both for borrowers who opted for moratorium and those who did not avail of holiday (moratorium).
For example, in the business unit, working capital levels and amount of interest levied would be different now compared to March 2020.
This would change in the outstanding amounts. Hence, this tweaking was necessary. Banks have to invoke restructuring plans not later than December 31, 2020. In case of personal loans, the resolution plan must be implemented within 90 days from the date of invocation. However, the lending institutions should strive for early invocation. For corporate debt, the plan must be implemented within 180 days. March 1 was the date for establishing eligibility for recast and not so much to crystalise amounts that could be restructured, a senior public sector bank executive said.
In another query on loan against properties (LAP), the RBI said LAP for business purposes with immovable property as security is not personal loan. It can be restructured only under the framework for non-individual borrowers facing stress due to Covid-19.
Anuj Puri, chairman of Anarock Property Consultants, said these qualifying criteria in the recast scheme will leave out quite a few real estate developers.
These developers have been flagged by lending institutions as having stressed loan or special mention accounts-1 accounts before March 1 this year.
The RBI said there are loans granted to individuals where the property is in the name of the individual. But a related company/non-individual entity is taken as a co-borrower on the loan structure to supplement the income for repayment. Such advances would not be treated as personal loans. They would have to be dealt under a scheme for resolution of other exposures, the RBI said.
“This clarity will aid many small and medium businesses to become eligible for corporate loan restructuring/recasting. This recourse could provide the much-needed elbow room to suppliers of raw materials to the real estate sector to keep their businesses afloat and viable,” said Ramesh Nair, CEO and Country Head, JLL India.