By Ankur Mishra
Borrowers who have either lost their jobs or have had to face steep salary cuts will now be eligible for a new loan recast plan banks are working on. The country’s largest lender, State Bank of India (SBI), is planning to grant repayment break to borrowers, provided they meet the criteria set by the bank. The bank has defined three categories for restructuring of personal loans, sources close to development told FE. The Reserve Bank of India (RBI) had earlier allowed restructuring of personal loans, including granting moratorium for the borrowers impacted by Covid-19. The bank is working on a board approved policy for restructuring of personal loans by August 31. It is also mulling to pass on provisioning cost for providing restructuring on personal loans.
The loan recast will lead to higher provisioning cost for the lender, but it is unclear as of now as to who will bear that cost. As per RBI directions, the bank will have to make 10% capital provisioning for resolution of personal loans. “There is a 10% provision cost, we have not decided on that. That cost has to be passed on to somebody,” an SBI official told FE.
The duration on the periodicity of the moratorium will be determined by the financial impact on the customer due to Covid-19. “Suppose a retail borrower has lost his job, the bank will be willing to give a six-month moratorium,” the official said. “Someone who has got a salary cut, let’s say by 25%, we can say that you take moratorium for three months,” he further said. The bank is going to have two or three standard categories for restructuring of personal loans, instead of a customised options for borrowers. The standardisation will be product wise, whether it is a home loan, car loan or an individual loan, as per sources.
Keeping a strict check on eligibility, the bank is going to establish whether a customer has been impacted by pandemic or not. For instance, in case of salaried class borrowers, there should be some establishing fact that the borrower was not receiving salary or has got a pay cut.
The central bank has kept strict barriers for eligibility of borrowers under recast window. The borrowers should not have dues more than 30 days as on March 1, for being eligible. Customers who have availed the moratorium between March and August are also not necessarily eligible for a loan recast, said sources. “Someone is who is just conserving cash, is not eligible for loan recast, even if he or she may have availed moratorium,” the SBI official said.
RBI had allowed lenders to grant moratorium relief to borrowers for three months from March 1, in the first phase. It extended moratorium period by three months till August, 2020 in the second phase.
Krishnan Sitharaman, senior director, Crisil said that borrowers under personal loan restructuring scheme may be lower than current customers under moratorium. “Many of the customers had availed moratorium for conserving cash,” he said. The rating agency expects retail non-performing assets (NPAs) for banks to go up after August.
“We do expect retail NPAs to go up after August. Had RBI restructuring not been there for personal loans, NPAs could have gone even higher, ” he said.