In 2020, the Reserve Bank of India (RBI) had announced a debt restructuring programme. And then in May 2021. because of the second wave of COVID-19, it announced a second resolution framework for multiple borrowers, including individual borrowers.
Various banks have announced the terms and conditions to avail them Debt Restructuring 2.0 program.
Click here to get details of HDFC Bank Debt Restructuring 2.0 Policy
The country’s largest public sector lender, (SBI) has released the guidelines adopted by the bank regarding the implementation of the Resolution Framework 2.0 for Covid19 related stress on its website. here’s a look State Bank Of IndiaAccording to the bank’s website, Resolution Framework 2.0 for Covid19 related stress (personal loan and business loan).
Eligible Loans:
The following loans given to individuals:
a) I. Home Loans and Other Related Loans
secondary education loan
iii. Auto loans (other than loans for business use)
iv. All Types of Personal Loan – Express Credit etc.
b) Loans for business purpose to individuals (total exposure by lending institutions as on 31.03.2021 not exceeding Rs.50 crore).
c) Loans to small business including those engaged in retail and wholesale trade (Non-MSMEs) (with total exposure by lending institutions of more than Rs 50 crore as on 31.03.2021). Loans under e-DFS and EVFS (provided they are non-MSMEs) will also be covered under this framework.
d) Accounts under the above categories should be classified as standard as on 31.03.2021. Accounts classified as SMA-0, SMA1 and SMA2 as on March 31, 2021 are eligible.
Exclusions:
a) MSME borrowers with aggregate exposure to lending institutions collectively below Rs.50 crore or less as on 31.03.2021.
b) Agricultural loans listed in para 6.1 of Reserve Bank of India’s Master Direction FIDD.CO.Plan.1/04.09.01/2016-17 dated July 7, 2016 (as updated from time to time)
c) Loans to Primary Agricultural Credit Societies (PACS), Farmers Service Societies (FSS) and Large Size Tribal Multi Purpose Societies (LAMPS) for on-lending to agriculture.
d) Exposure to financial service providers including NBFCs. Financial service providers shall have the same meaning assigned to them in sub-section (17) of section 3 of the Insolvency and Bankruptcy Act, 2016.
e) Exposure to the Central and State Governments; local government bodies (eg, municipal corporations); and a body corporate established by an Act of Parliament or State Legislature.
f) Loans sanctioned to staff/bank employees.
Borrower’s accounts which have availed any resolution in terms of Resolution Framework – 1.0* are subject to exemption from:
a. In the case of loans of borrowers where resolution plans were implemented in terms of Resolution Framework – 1.0, and where resolution plans did not permit moratorium or moratorium for a period of less than two years and/or extension of the remaining period Less than two years, units operating under this framework are allowed.
I. To modify such schemes to the extent of extension of the moratorium/residual period subject to a limit of 2 years only and consequential change in the terms of the loan necessary to implement such extension.
The overall cap on extension of the moratorium and/or residual period granted under the Second Resolution Framework – 1.0 and this framework shall be two years combined.
iii. The amendments will follow the timelines outlined above under this framework.
iv. Asset classification and provisioning norms as applicable under Resolution Framework 1.00 will be applicable.
B. WORKING CAPITAL LOAN TO SOLVED SMALL BUSINESSES UNDER RESOLUTION FRAMEWORK 1.00 (SECTION-9 OF THIS POLICY)
Documentary evidence required to ascertain the eligibility of the eligible borrowers/borrowers:
A. For Personal (Non-Business) Loans:
a) To ensure operational units that this facility is provided only in cases where there is stress due to COVID-19 related issues such as:
I. reduction in salary/income
Salary deduction/suspension during the second lockdown period
iii. job loss/business closure
iv. Reduction in activity of units/shops/commercial establishments in case of closed/self-employed/professionals/businessmen during lockdown
v. Other instances where the income flow / cash flow of the borrowers is adversely affected due to the lockdown and other COVID-19 related issues.
vi. There is no reduction in salary/income but the borrower/family member has been affected by COVID-19 and has spent a lot on the treatment of COVID-19.
b) The facility will be provided on the request of the borrowers
Application on the approved format for Resolution Framework 1.00 (undertaking that they have been affected by COVID-19) – (Available to customers on the digital platform mentioned in g below).
d) Documentary proof in the form of pay slip and current pay slip for the pre-COVID-19 period (i.e. February 2020) should be obtained.
e) Dismissal/Leave letter (in case of loss of job)
f) Need to obtain simple declaration from self-employed professionals/businessmen that their business is affected by COVID-19.
g) A digital platform will be hosted on our website to enable customers to ascertain their potential eligibility and apply for relief under this framework (including submission of documentary evidence) (as defined in the COVID Resolution Framework -1.00 has been used for). This will involve verification of the borrower through OTP which will be sent to his registered mobile number and mail id.
h) Customers will also have the option of visiting their home branches to apply for relief under the package. The branches will use the digital platform to feed the customer’s request details.
i) Concerned Business Units (PBBUs/REHBUs) branches to devise a suitable mechanism to handle such requests or use the same mechanism as used under the COVID Resolution Framework-1.00.
Referenced Date:
The reference date for the outstanding amount of the loan to be considered for resolution would be 31 March 2021.
Invocation:
a) The date on which the Bank informed the borrower on the basis of the application that the Bank has, in principle, agreed to implement the Resolution Package, shall be the date of invitation.
b) In respect of applications received by operating entities from their borrowers for implementing the resolution process under this framework, an assessment of eligibility for resolution shall be completed in accordance with the instructions contained in this policy, and the decision on the application shall be communicated Write a letter to the applicant within 30 days of the receipt of such application.
c) The resolution under this framework cannot be implemented after 30.09.2021. d) If there are multiple lending institutions in contact with the borrower, the decision to implement the resolution process under this framework will be taken by each lending institution independently.
Timeline for Implementation of Resolution Plan (RP):
The resolution plan should be finalized and implemented within 90 days from the date of invocation of the resolution process under this window.
Scope of solution plan:
For personal (non-business) loans:
a) A moratorium of up to 24 months can be given to borrowers whose income has been affected.
b) Rescheduling of installments and extension of tenure for a maximum period equal to 2 years (including moratorium period).
c) The LTV ratio for home loan borrowers should not exceed 95%.
d) The EMI/NMI ratio (post moratorium) should not exceed 70%. The EMI/NMI ratio will be calculated on the basis of the revised EMI and current income or estimated income at the end of the moratorium.
e) Where job loss is involved, a criterion for estimating future income of borrowers should be their average income for the last 3 years.
f) The moratorium period, if granted, shall come into force immediately after the implementation of the resolution plan.
g) Repayment will commence immediately after the moratorium period.
h) The bank will have to make additional provisions under this framework.
The additional cost of provisions is worked out at 70 bps per annum. To reduce the burden on borrowers, it is proposed to charge only 50% i.e. 35 bps as additional interest on all loans considered under this framework, the balance 50% will be absorbed. by bank. However, in respect of home loans up to Rs 30 lakh and other loans up to Rs 10 lakh, no additional interest will be charged, and the entire cost of provision will be borne by the bank.
i) Compromise settlement is not permitted as a resolution plan under this framework.
Terms of implementation of the solution plan:
The resolution plan shall be deemed to be implemented only if all of the following conditions are met:
a) All relevant documents, including the execution of necessary agreements between the bank and the borrower and creation of charge on the collateral provided, if any, are completed in accordance with the resolution plan being implemented.
b) After the implementation of the package, the borrower’s accounts should remain standard.
c) Any resolution plan implemented in contravention of the time-frame/framework prescribed above shall be governed solely by the Prudential Framework for Resolution of Stressed Assets issued on June 7, 2019.
The form used to apply for loan restructuring can be viewed here