SBI 2.0 loan restructuring: conditions, who is eligible, how to apply

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To help borrowers who are having difficulty repaying their loans, the central bank has lent a helping hand in the form of loan restructuring.

In 2020, the Reserve Bank of India (RBI) announced a loan restructuring program. And then in May 2021, due to the second wave of Covid-19, he announced a second resolution framework for many borrowers including individual borrowers.

Various banks have announced the terms of use of their 2.0 loan restructuring program. Click here for details on HDFC Bank Loan Restructuring Policy 2.0

The country’s largest public sector lender (SBI) has posted on its website the guidelines adopted by the bank regarding the implementation of the 2.0 resolution framework for Covid19-related stress. Here’s a look at SBI’s 2.0 resolution framework for Covid19 stress (personal loans and business loans), according to the bank’s website.

Eligible loans:

The following loans granted to individuals:

a) i. Home loans and other related loans

ii. Study loans

iii. Auto loans (other than business loans)

iv. All variants of Personal Loan – Credit Xpress etc.

b) Loans for commercial purposes to individuals (with an aggregate exposure of credit institutions not exceeding Rs 50 crore as of 03.31.2021).

c) Loans to small businesses, including those engaged in retail and wholesale trade (non-MSME) (with aggregate exposure of credit institutions not exceeding Rs 50 crore as of 03.31.2021). Loans under e-DFS and eVFS (provided they are not MSMEs) will also be covered by this framework.

d) The accounts of the above categories should be classified as Standard as at 03.31.2021. Accounts classified SMA -0, SMA1 and SMA2 as of March 31, 2021 are eligible.

Exclusions:

a) MSME borrowers whose overall exposure to credit institutions, collectively, is Rs.50 crore or less as of 03.31.2021.

b) Agricultural credit as listed in paragraph 6.1 of the general directive RBI FIDD.CO.Plan.1 / 04.09.01 / 2016-17 of July 7, 2016 (as updated from time to time)

c) Loans to Primary Agricultural Credit Societies (PACS), Farmer Service Societies (FSS) and Large Multipurpose Adivasi Societies (LAMPS) for on-lending to agriculture.

d) Exposures to financial service providers, including NBFCs. Financial service providers have the same meaning as in subsection (17) of section 3 of the Insolvency and Bankruptcy Act 2016.

e) Exposures to central and state governments; Local government organizations (eg municipal corporations); and legal persons constituted by an act of Parliament or of the State Legislature.

f) Loans sanctioned to bank staff / employees.

Accounts of borrowers who have made use of a resolution under the Resolution Framework – 1.0 * subject to the exemption below:

A. In cases of borrower loans for which resolution plans had been implemented under the Resolution Framework – 1.0, and where the resolution plans had not authorized any moratorium or moratorium of less than two years and / or extension of the remaining term by a period of less than two years, business units are authorized under this framework.

I. to modify these plans only to the extent of the increase in the moratorium period / extension of the residual term subject to a ceiling of 2 years and the consequent changes necessary in the conditions of the loan for the implementation of this extension .

ii. The overall ceilings for the moratorium and / or the extension of the residual term granted under Resolution Framework – 1.0 and this framework combined will be two years.

iii. Changes will follow the timelines mentioned above in this Framework.

iv. The asset classification and provisioning standards applicable under resolution framework 1.00 will apply.

B. Small Business Working Capital Loan Resolved Under Resolution 1.00 (Clause 9 of this Policy)

Eligible borrowers / supporting documents required to verify borrower eligibility:

A. For personal (non-business) loans:

a) The operational units ensure that this facility is extended only in cases where the stress is due to problems related to COVID-19 such as:

I. Reduction of salary / income

ii. Reduction / suspension of wages during the period of confinement

iii. Job loss / business closure

iv. Closure during confinement / reduced activity of units / stores / business establishments in case of independents / professionals / businessmen

v. Other instances where borrowers’ income / cash flow is negatively affected due to foreclosure and other COVID-19 issues.

vi. No reduction in salary / income but the borrower / family member was affected by the Covid-19 and incurred substantial expenses for the treatment of the Covid-19.

b) The facility will be available to borrowers on demand

Application on the approved format for the 1.00 resolution framework (by committing to have been affected by COVID-19) – (Available to customers on the digital platform mentioned in point g. Below).

d) Documentary proof in the form of payslips for the pre-COVID-19 period (i.e. February 2020) and current payslip to be obtained.

e) Letter of termination of employment / leave (in the event of loss of employment)

f) A simple declaration should be obtained from independent professionals / businessmen declaring that their business is affected by COVID-19.

g) A digital platform will be hosted on our website (as used for Covid Resolution Framework-1.00) for clients to enable them to verify their provisional eligibility and apply online (including submission of documentary evidence ) for relief under this framework. This will include validation of the borrower through OTP which will be sent to their registered cell phone number and email id.

h) Customers also have the option of requesting package relief by visiting their home branches. Branches will use the digital platform to feed the details of the customer’s request.

i) The respective business units (PBBU / REHBU) to design an appropriate mechanism or use the mechanism used under the Covid-1.00 resolution framework to process such requests in branches.

Reference date:

The reference date of the outstanding debt that will be taken into consideration for the resolution is March 31, 2021.

Invocation:

a) The date on which the Bank communicates to the Borrower, on the basis of the request made, that the Bank, in principle, agrees to implement the resolution package, will be the invocation date.

b) With respect to requests received by business units from their borrowers to invoke the resolution process under this Framework, the assessment of resolution eligibility in accordance with the instructions contained in this Policy shall be completed, and the decision on the request must be communicated in writing to the requester within 30 days of receipt of such requests.

c) The resolution in this context can be invoked no later than 30.09.2021. d) If there are several credit institutions exposed to the borrower, the decision to invoke the resolution process under this framework will be taken by each credit institution independently.

Resolution plan implementation schedule (PR):

The resolution plan must be finalized and implemented within 90 days of the date of invoking the resolution process under this window.

Scope of the resolution plan:
For personal (non-business) loans:


a) A moratorium of up to 24 months may be extended for borrowers whose income has been impacted.

b) Rescheduling of payments and extension of the mandate for a period equivalent to a maximum of 2 years (moratorium period included).

c) LTV ratio should not exceed 95% for mortgage borrowers.

d) The EMI / NMI ratio (post-moratorium) must not exceed 70%. The IME / NMI ratio will be calculated based on the revised EMI and current or estimated revenues at the end of the moratorium.

e) In the event of job loss, one of the parameters for estimating future income of borrowers should be their average income over the past 3 years.

f) The moratorium period, if granted, will come into effect upon implementation of the resolution plan.

g) Repayment begins immediately after the moratorium period.

h) The Bank will have to make additional provisions in this context.

The additional cost of provisions is set at 70 bps per year In order to reduce the burden on borrowers, it is proposed to charge only 50% or 35 bps of additional interest on all loans considered in this context, the remaining 50% will be absorbed by the Bank. However, with respect to home loans up to Rs.30 lakes, and other loans up to Rs.10 lakes, no additional interest will be charged, and the full cost of provisioning will be borne by the Bank.

i) Compromise settlements are not permitted as a resolution plan under this framework.

Conditions for implementing the resolution plan:

The resolution plan is only deemed to be implemented if all of the following conditions are met:

a) All related documentation, including the execution of the necessary agreements between the Bank and the Borrower and the creation of charges on the guarantees provided, if any, are completed in accordance with the resolution plan implemented.

b) After the implementation of the package, the borrower’s accounts should continue to be standard.

c) Any resolution plan implemented in violation of the above timetable / framework will be fully governed by the prudential framework for the resolution of stressed assets published on June 7, 2019

The form to be used to request the loan restructuring is available here


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