The banks are using the K V Kamath committee's guiding principles of 'leverage' and 'liquidity' to frame board-approved policies for a two-year loan restructuring of retail loans especially home and auto loans.
The Reserve Bank of India had earlier given the freedom to banks to decide the rules of retail loan restructuring, while a high-powered K V Kamath committee was formed to suggest parameters for corporate restructuring.
The K V Kamath committee had already submitted its report, which the RBI has accepted.
The finance minister Nirmala Sitharaman has asked banks to roll out the loan restructuring scheme by September 15 as the six-month loan moratorium has already ended in August. The end of moratorium is expected to cause hardship to borrowers as banks will start charging new EMIs from September 1 onwards. The credit bureaus will also set the score accordingly as any default will reflect in the borrowers' credit score.
A lower credit score shuts the doors for any additional funding by way of a personal loan or credit card.
According to bankers, the loan restructuring parameters for retail borrowers will be the extent of leverage which will include all kinds of existing loans from home, auto to credit card loans. The liquidity position is yet another parameter to assess the current cash flow situation as there have been salary cuts, leave without pay and job losses. Similarly, the bank will also analyse debt servicing capability by looking into the current, savings or fixed deposits or income of the spouse.
Retail loan borrowers, who took a six-month moratorium, may opt for a loan restructuring. But, only the ones with standard account and who were not on default for more than 30 days as on March 01, 2020 will be eligible for it.
Currently, the outstanding retail loans are in the region of Rs 25 lakh crore. The major chunk of retail loans are mortgages or home loan, which constitute about Rs 13 lakh crore. The personal loans are also big with outstanding at around Rs 7 lakh crore. The auto loan outstanding is about Rs 2 lakh crore.
The restructuring will also benefit the banks as they will be exempted from classifying the loan as NPAs, which attract provisioning and also eat away the capital.
Under the proposed loan restructuring, the options are to extend the tenure of loan for additional two years or provide moratorium on interest and principal or a mix of both -- loan tenure extension and moratorium. Banks are also in the process of setting the rules for treatment of loan (as NPA) in case of any failure of loan restructuring during the implementation period.