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RBI's loan restructuring scheme: Here's how it benefits you

The debt restructuring process involves a reduction of the interest rates on loans or an extension of its repayment tenure, or both

Topics
RBI | debt restructuring scheme | loan

Sukanya Roy  |  New Delhi 

First things first, what is a restructuring scheme?

It is a process used by companies and individuals facing financial distress or on the brink of insolvency to lower and renegotiate their debts and restore liquidity so that companies can continue their business, while individuals get on with their lives. Basically, are restrutured to avoid the risk of default on existing debt.

The debt restructuring process involves a reduction of the interest rates on or an extension of its repayment tenure, or both. These steps improve a company’s chances of paying back the dues. Well, it is a win-win for both parties because the business avoids bankruptcy, and the bankers typically receive more than they would have, had the company been forced into liquidation.

Now, on August 6, in view of the Covid-19 pandemic and the resultant stress in the system, the decided to allow lenders to provide a restructuring facility on classified as standard as on March 1, 2020.

This restructuring will have to be implemented by March 31, 2021, governor Shaktikanta Das said. The decision was announced after the 24th bimonthly meeting of the RBI's Monetary Policy Committee.

So, the moratorium ended on August 31. Retail borrowers who had availed of it will once again have to bear the burden of paying EMIs. The moratorium gave them some relief in terms of repayment, but the restructuring will give them long-term relief. It will also provide major relief to lenders and reduce financial stability risks to the overall economy, as most bankers were expecting a major spike in their NPAs after the end of the moratorium facility.

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First Published: Wed, September 09 2020. 14:37 IST
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