SBI Readies Plan For Restructuring Relief To Retail Borrowers: Exclusive
As the moratorium ends in August, SBI is readying a set of rules to judge restructuring requests.
State Bank of India is finalising its plan to offer restructuring relief to retail borrowers, after the banking regulator permitted lenders to do so. The restructuring plan will be designed strictly for retail or individual borrowers directly affected by Covid-19, two senior officials at the bank said while speaking on conditions of anonymity.
Given the large number of retail borrowers that SBI services, the lender will not be able customise the restructuring relief as it might in the case of large corporate borrowers. Instead a set of basic rules will be laid down and branch level staff will be empowered to take decisions on accounts that can be restructured, the officials cited earlier said. The rules will likely be placed before the bank’s board for approval next week, they added.
SBI didn’t respond to an email sent on Wednesday morning.
As on June 30, SBI had outstanding retail advances of Rs 7.5 lakh crore. Of this, Rs 4.5 lakh crore came from the lender’s housing finance book, while unsecured personal loans for salaried borrowers stood at Rs 1.45 lakh crore.
Proof Of Covid Impact
As a first step, SBI will seek proof from borrowers that shows a hit to income. This could be a reduction in salary, a loss of job, or reduced professional or business income.
For those who hold salary accounts with SBI, the proof could come via their bank statement. Other customers will need to provide documentation such as communication from the employer or records of business.
Relief On Principal Repayment
Once the bank is convinced that the stress is genuine, the borrowers will be given a principal repayment moratorium, where interest continues to accumulate, the first of the two bankers cited earlier said.
The period of this moratorium will be in addition to the moratorium the customers had availed between March and August, when the RBI allowed them to defer repayments, this banker said.
As a result of this deferred repayment on principal, typically, a customer who would have also availed the full-six month moratorium between March-August would see their loan term extended by 10-14 months, depending on the applicable interest rates, the first banker cited earlier said.
Under the new restructuring scheme, the RBI allows banks to extend the repayment schedule by a maximum of two years for retail customers. SBI is, however, likely to avoid giving an extension for more than 12 months in most cases, said the second banker cited earlier.
No Relief On Interest Rates
While SBI is willing to extend the repayment period, it’s not likely to offer lower interest rates to customers as part of the restructuring plan, the two officials cited earlier said.
According to the first official, there’s a cost involved in restructuring an account affected by the pandemic, such as the 10% provision that banks are expected to maintain against the loan.
A part of this cost will be passed on to the customer, under SBI’s restructuring scheme, in the form of a longer repayment period, which also means that eventually the customer may end up paying more interest over the lifetime of the loan.
Will Customers Line-Up For Restructuring?
The restructuring scheme could very well prove to be a lifeline for customers who are facing significant financial stress, said Suresh Sadagopan, founder, Ladder7 Financial Advisories. But there are no free lunches.
“If a lender is offering you an extension, in exchange for not downgrading your loan account and adversely affecting your credit score, then it could very well turn out to be the best option,” Sadagopan said. “For a regular borrower this scheme doesn’t make much sense, but for someone who’s temporarily unemployed or has seen a large pay cut, this could be beneficial.”
According to information shared by SBI at the time of announcing its first quarter results, Rs 6,942 crore in home loans and Rs 2,454 crore in personal loans had paid less than two monthly installments since March. In the April-June period, the retail loan business added slippages worth Rs 1,331 crore, the highest contributor to the bank’s fresh bad loans for the quarter.
While these numbers are indicative of the loans that may come up for restructuring, the bankers cited earlier said such requests may outstrip the loans under moratorium. The effects of the pandemic and the national lockdown are still visible and it’s likely that borrowers may see more benefit in a restructuring scheme than a moratorium, they said.
Under RBI guidelines, loan restructuring is available for retail customers who were not in default for more than 30 days as of March 1. Banks can invoke the scheme only till Dec. 31 and will have 90 days to implement the scheme from the date of invocation, the regulator said. The RBI allows rescheduling of payments, conversion of any interest accrued into another credit facility, or, granting of moratorium based on an assessment of the borrower’s finances, under this scheme.