RBI’s Second Loan Moratorium Framework 2.0 – Key Points to Know

India is now engulfed by the second wave of the Covid pandemic, resulting in lockdowns being again introduced across many states in the country. This has once again brought unprecedented hardships to life and the economy.

With businesses and establishments being shut, people, especially those whose earnings fall in the smaller income group have been facing severe hardships even in repaying their existing EMIs apart from dealing with the huge costs of treating Covid-19 pandemic related health issues.

To help counter these challenges faced, the Reserve Bank of India (RBI) has come up with the Second Loan Moratorium Resolution Framework 2.0 – 2021. Under this Framework 2.0 for loan restructuring, RBI has instructed lenders to grant a loan moratorium of up to two years,

• For individuals, small and medium enterprises and MSMEs that could not restructure their loans during the first RBI loan moratorium announced during 2020;
• And have been classified as standard accounts as of March 31, 2021.

Even those who availed of the loan moratorium during the first phase can get some benefits during this second loan moratorium, on fulfilling certain conditions. Let us explore the key facts about RBI’s Second Loan Moratorium – 2021.

Eligibility Criteria to qualify for the RBI Loan Moratorium Framework 2.0

Individuals, small and medium enterprises, and MSMEs having aggregate exposure of up to Rs 25 crore are eligible to apply under RBI Loan Moratorium Framework 2.0, provided they had not availed any kind of restructuring under any of the earlier restructuring frameworks (including under the Resolution Framework 1.0 dated August 6, 2020), and whose accounts have been classified as ‘Standard’ as on March 31, 2021. There should be no default on loan payment till March 31, 2021.

Even those borrowers who had availed the benefit under RBI Resolution Framework 1.0 can get their loan moratorium period extended provided their accounts have to be classified as standard accounts as of March 31, 2021, and there should not be any default on their loan payment till March 31, 2021.

How can Borrowers gain from RBI’s Second Loan Moratorium?

The second wave of Covid-19 pandemic and induced lockdowns have resulted in most borrowers facing financial hardships in repaying their existing EMIs on a regular basis, due to their businesses being shut down or reduced salary owing to lockdown.

As such, if they are not able to pay their EMIs regularly, then they have to incur huge penalty charges. This not only causes a huge dent in their savings but also affects their creditworthiness, adversely impacting their credit score.

Understand how the Covid-19 pandemic can impact your credit score, which can impact the borrower’s capability to apply for potential loans in the future. In order to help such aggrieved borrowers overcome their financial issues, RBI has launched the Second Loan Moratorium Framework 2.0, making it eligible for such borrowers who have not availed the benefit under the first RBI Loan Moratorium Framework 1.0., and have not defaulted on loan payment till March 31, 2021.

If the borrower had availed the benefit under the first RBI Loan Moratorium Framework 1.0., then they can get an extension of the benefit up to a maximum period of 2 years, provided there has been no default in loan payment till March 31, 2021.

1. Borrowers who did not avail of RBI’s First Loan Moratorium

Individuals, small businesses and MSMEs having aggregate exposure of up to Rs 25 crores and who did not take the benefit of the first phase of RBI Loan restructuring during 2020; and whose accounts were classified as ‘Standard’ as of March 31, 2021, are eligible for RBI’s second loan moratorium for a period of 2 years. However, they should not have defaulted on their loan payment till 31^st March 2021.

Taking benefit from the RBI’s second moratorium would help such borrowers in avoiding defaults on their existing loan during the ongoing crisis. Any default on their loan repayment would otherwise increase the cost of their loan adversely impacting their credit score.

Additional Reading:  How to Improve Your Credit Score?

1. Borrowers who have availed RBI’s First Loan Moratorium

Even borrowers who have availed the benefit from RBI’s First Loan Moratorium can also benefit under RBI’s second moratorium, by extending their remaining loan tenure by up to two years. However, their accounts should be classified as ‘Standard’ as of March 31, 2021, and they should not have defaulted on their loan payment till 31^st March 2021, to be eligible to avail of this benefit.

Additional Reading: More About Loan Restructuring

Conclusion

Borrowers have been given time until September 30, 2021, by the RBI  to approach their lenders to request a restructuring of their loans as per the terms of the second moratorium. If the borrower fulfils all the conditions, then the lender will have to implement it within 90 days of their application.