Lenders do have a board-approved policy for restructuring loans. ‘But most lenders don’t offer restructuring to retail borrowers as there is a cost attached to it’
The second covid wave is likely to impact livelihoods like the first one. Many states have declared lockdowns and more could do the same as the medical infrastructure is inadequate to handle the rising number of cases.
The Reserve Bank of India (RBI) has not declared a moratorium or any other relief for borrowers yet like it did last year. Can a borrower or credit card user approach the financial institution to seek relief?
“If they have lost jobs or employers have cut their salaries, they can approach the lender or the card issuer and renegotiate the terms of payment," said V.N. Kulkarni, a debt counsellor and a retired banker. He was also the chief counsellor with Abhay Credit Counselling Centre, an initiative by the Bank of India.
“It is, however, not easy. Most banks will reject a loan restructuring application stating that their policies don’t allow it. The borrower must be persistent and approach the top officials in the bank, especially the general manager of the recovery department," said Kulkarni.
When it comes to home loans, there is an asset mortgaged with the lender. It can take possession of the asset under the Sarfaesi (Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest) Act.
But for personal loans and credit card outstanding, the financial institutions must approach a court and file a civil suit for recovery.
“Courts can take years to issue orders for recovery. It is in the interest of the lender to help the borrower if he is willing to pay and seeking some relaxation," said Kulkarni.
Lenders do have a board-approved policy for restructuring loans. “But most lenders don’t offer restructuring to retail borrowers as there is a cost attached to it. Most would rather be willing for a one-time settlement," said Adheer Dhar, head, personal loans and fintech, Clix Capital.
He further explained that when a lender restructures a loan, it will have to forego interest and give certain relaxation to the borrower. The cost of collection and restructuring is considerable. On small-ticket loans of ₹3-5 lakh, lenders can’t keep doing it again.
In the past decade, lenders have focused on giving personal loans to the salaried class. In this segment, defaults are usually low. Even if a borrower is unable to repay, it is usually for a month or two. Once the borrower gets a new job, he starts repaying.
In rare cases, a lender can close the ongoing loan for a delinquent borrower and re-book a new loan with revised terms and conditions, said Dhar. Lenders may offer such restructuring if the principal amount is significant or when some cities witness a natural disaster.
Credit card issuers, however, do offer a settlement.
“A credit card, by default, is not a term loan. A cardholder must repay every month. If someone has run up a large debt and is unable to repay, the issuer could convert the outstanding balance into EMIs, and ask the cardholder to repay in two or three tranches. The issuer could be willing to waive off some percentage of interest charges. The practice is common," said Dhar.
As it’s a settlement, the customer won’t be able to use the credit card even after the complete repayment. It’s a closure forced due to settlement.
Do remember, any settlement or renegotiation of loan or credit card debt will impact your credit score.
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