Resolution Framework For Covid-19 Related Stress For Personal Loans

Introduction: The Coronavirus pandemic has shattered the dreams of millions of Indians. India's economy, which was growing rapidly, has fallen flat. Tens of millions of people were coming out of poverty, megacities were being erected, India's strength was increasing and it was poised to become an economic superpower. Due to slowdown in the economy which was triggered by the impact of COVID-19 pandemic, some employees had either lost their job or working on reduced salaries thereby triggering a problem of serving of their EMIs.

- A. K. Agnihotri

The RBI in starting of the lockdown period due to the COVID-19 pandemic had permitted banks to grant a moratorium cum forbearance of 6 months in deferment of EMIs which ended on 31 August 2020. This forbearance of 6 months is being made available indiscriminately to all the borrowers, but the matter of fact was that it cannot last to all borrowers for an indefinite period thereby creating an environment of uncertainty amongst the said segment.

As the process for normalization of economic activity gathers pace, the need to address the deeper cash flow/balance sheet stress that many of the viable entities may have been exposed to on account of the pandemic and the consequent impact on the financial institutions is also required. Though the phased unlock down has started, the severity and continuity of COVID-19 impact is visible in business and economy and normalcy will take some time.

Keeping in consideration of the genuine difficulties facing by individual borrowers while servicing their EMIs due to reducing earning capacity of the salaried as well as self-employed class, the RBI has advised all the lenders to formulate a Resolution Policy for the borrowers impacted by the ongoing precarious COVID-19 pandemic vide its Circular dated 06 August, 2020.

Who are eligible under this scheme?

• In the said circular issued by RBI, clarity had been made on the terminology of 'Personal Loan' which was explained with a deeper meaning that prior to the issuance of circular is in the state of ambiguity.

• Personal Loan covers loans disposed to individuals and consists of

a) Consumer credit

b) Education loan

c) Loans given for creation/enhancement of immovable properties