To address the economic fallout and the resultant financial stress caused by long periods of lockdowns due to COVID 19 pandemic, RBI has issued a circular providing the banks and lending institutions a framework under which loans given to individuals for personal consumption and entities for their business needs can be restructured. This will be applicable only for individuals and entities that have been impacted due to the COVID-19 pandemic.
Customers meeting below mentioned criteria will be eligible for restructuring
a) Individuals and Entities (Personal segment)- Should have been classified as Standard and not in default for more than 30 days with the bank as on March 1, 2020. The customer should continue to remain standard across all its loans/facilities as of the date of restructuring.
b) Entities (MSME segment) – Should have been classified as Standard as on March 1, 2020 and should also fulfil the following criteria
i. The aggregate exposure, including non-fund-based facilities, of banks and NBFCs to the borrower does not exceed INR 25 Crore as on March 1, 2020
ii. The borrowing entity is GST-registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GST-registration. This shall be determined based on exemption limit obtaining as on March 1, 2020
c) Others not falling in the above definition of Personal segment or MSME will also qualify for restructuring provided below mentioned conditions are fulfilled
i. Should have been classified as Standard as on March 1, 2020 but not in default for more than 30 days with any lending institution as on March 1,2020
ii. In case if there are multiple lending institutions with exposure to the borrower, the resolution framework shall be treated as invoked if lending institution representing 75 percent by value of total outstanding credit facilities (fund based as well as non-fund based) and not less than 60 percent of lending institution by number agree to invoke the same.
In terms of RBI circular DBR.No.BP.BC.99/08.13.100/2017-18 dated January 4, 2018
Personal loans refer to loans given to individuals and consist of (a) consumer credit, (b) education loan, (c) loans given for creation/ enhancement of immovable assets (e.g., housing, etc.), and (d) loans given for investment in financial assets (shares, debentures, etc.).
Consumer Credit as defined above refers to the loans given to individuals, which consists of (a) loans for consumer durables, (b) credit card receivables, (c) auto loans (other than loans for commercial use), (d) personal loans secured by gold, gold jewellery, immovable property, fixed deposits (including FCNR(B)), shares and bonds, etc., (other than for business / commercial purposes), (e) personal loans to professionals (excluding loans for business purposes), and (f) loans given for other consumptions purposes (e.g., social ceremonies, etc.). However, it excludes (a) education loans, (b) loans given for creation/ enhancement of immovable assets (e.g., housing, etc.), (c) loans given for investment in financial assets (shares, debentures, etc.), and (d) consumption loans given to farmers under KCC.
a. Loan Against Property” loans which are availed for business purpose but are secured by immovable assets
b. Loans granted to individuals where the property is in name of individual and a related company/non individual entity has been taken as co-borrower on the loan structure to supplement the income for repayment of loan.
If not, where would such set of customers would be covered for Covid-19 related stress?
The above exposures do not qualify as personal loans. In such cases, the resolution of eligible borrowers may be undertaken under Part B of the Annex to the Resolution Framework advised by RBI or under the MSME guidelines for restructuring of advances, subject to the borrower being an MSME.
Note: Wholesale and Business Banking customers are requested to reach out to their respective Relationship Managers for details.