Published on Oct 9, 2020Updated on Oct 14, 2026
Loan restructuring is a process in which borrowers facing financial distress renegotiate and modify the terms of the loan with the lender to avoid default. It helps to maintain continuity in servicing the debt and gives borrowers a certain degree of flexibility to restore financial stability.
The economic fallout due to COVID-19 induced pandemic has resulted in severe economic hardship for millions of people. Seven months later, many are forced to work on reduced pay. Many others have not been able to find gainful employment after losing their jobs/business.
For individual borrowers, the situation is more difficult. The RBI moratorium which was granted as a relief measure for pandemic affected borrowers for 6 months ended on Aug 31, 2020. Now, borrowers are expected to pay their EMIs as per the revised schedules post moratorium. However, for many, this continues to be a challenge in the face of continued loss of income.
Keeping the evolving situation in mind and people’s struggle, the Reserve Bank of India has announced a resolution plan or a one-time loan restructuring scheme allowing lenders to help affected borrowers by altering certain terms of their outstanding loans. This will provide borrowers with a little flexibility in terms of loan repayments, interest cost, and loan tenure depending on the type of agreement with the lender.
However, there are certain conditions attached to the loan restructuring scheme, based on which lenders will provide relief to affected borrowers. Let’s have a look at the various aspects of it and loan restructuring meaning.
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As per the RBI directives, it is a one-time restructuring scheme to change the repayment terms and will apply to individuals as well as MSME/corporate borrowers who have been financially affected by the COVID-19 lockdown.
Therefore, if any loan is overdue for more than 30 days before the cut-off date, it will be already declared as a non-performing asset or an NPA. This period is 89 days for MSME borrowers.
A borrower’s eligibility for the loan restructuring scheme will depend on the following:
As per the RBI directives, the lender can offer two options to borrowers- either provide a loan moratorium period of up to two years or extend the loan tenure to reduce the EMI payable as per the repayment capacity. However, the tenure extension (including moratorium if offered) cannot be more than 24 months.
Further, the borrower can also transfer the outstanding interest amount into a separate credit facility to reduce the overall debt burden on the borrower.
Also, the personal loan account will be kept as a “standard” account, not in default until the lender agrees to proceed with the restructuring plan.
The lender will have 90 days with them to implement the loan restructuring resolution plan. If it fails to get implemented, the loan account will be declared as a non-performing asset.
As per the RBI circular, the last date for applying to the loan restructuring scheme is 31st December 2020. However, this may vary across lenders, so it would be advisable to check with your lender to confirm.
If the lender agrees to your loan restructuring scheme, it will have to be reported to the bureau, and your credit report will reflect this “Restructured” loan. There may be an impact on your credit score depending on the increase in your overall debt. However, this can get rectified through regular, timely repayments as per the revised schedule over a period of time.
Availing the loan restructuring scheme comes at a huge cost for the borrower and in the long term, it can affect your finances. Here’s how:
To understand this better, we encourage you to use our free loan restructuring calculator.
Borrowers must note that to get your loan restructured
Until the above process is completed, you should continue to pay your EMIs as per your current schedule. A failure to repay EMIs will be regarded as a default and will attract penalties and other charges accordingly. Please also note that:
Before applying for this scheme, do weigh all the pros and cons. Loan restructuring should be treated as a last resort option to manage your loan account. If you can pay your EMIs as per the current schedule by managing your budget, or through new sources of income, etc. then it is highly advisable that you do so. By repaying your EMIs on time and clearing off your loan quickly, your credit score will improve greatly, and your overall debt will reduce. This will enable you to avail loans in the future easily for any emergency or important personal/business needs.
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