The private sector lender Axis Bank has spelt out much wider norms for COVID-19 impacted retail borrowers of home or car loan for considering their request for a two-year loan restructuring.
The Mumbai-headquartered bank has given a list of examples such as borrowers facing difficulties in bearing medical or other emergency expenses incurred for self or family members. With over 6 million cases, mostly in big centres like Maharashtra, Andhra Pradesh, Tamil Nadu and Delhi, some of the borrowers are affected due to medical emergency.
Similarly, the cash flow situation of borrowers is considered in case the construction of the property being purchased is delayed. The delay in possession of a flat increases the rent burden during uncertain events like COVID-19.
In addition, there is also a possibility of borrowers suffering on account of continued lockdown, residence in a containment zone or workplace or industry impacted by COVID-19.
The exhaustive list of the private bank covers all possible reasons for a stress in a retail loan account.
The other banks have linked the loan stress directly with an income loss by way of salary cut or a job loss. Axis Bank too has specified income loss as a primary reason but has also detailed other likely reasons as well.
The largest bank in the country, the State Bank of India (SBI), has said that a borrower will be considered affected by COVID-19 based on salary reduction, job loss, closure of business, closure during the lockdown and reduced activity of business. The restructuring would be granted based on these documents.
The largest private bank HDFC Bank has said that there has to be a clear evidence of the borrower's business or source of funds or income being directly impacted by COVID-19.
The current restructuring facility comes with a cost. The banks are asking for additional interest rate or processing fees.
The SBI is demanding an additional interest rate of 35 basis points over and above the current pricing for the remaining tenure of the loan. This is a high price for a restructuring. The state-owned bank may be factoring in the likely default or loan loss after two years under the overall restructured loan basket. However, private banks like HDFC Bank and Axis Bank are charging a one-time processing fee for restructuring of the loan.
Apart from the additional cost, the borrowers opting for restructuring will also get a 'restructured tag' in their credit bureau report, which will give them differential treatment compared to a borrower with same credit score but without a restructured tag. Clearly, the banks will turn more cautious in giving them a fresh loan.