Retail borrowers eyeing debt recast face an uphill task

Banks are reporting surprisingly few cases of retail loan recasts in India, amid massive job and income losses because of the pandemic.

Banks are reporting surprisingly few cases of retail loan recasts in India, amid massive job and income losses because of the pandemic. Several borrowers took to social media to say that they have been unable to convince bankers of their eligibility for loan recasts, possibly due to varying interpretations of the central bank’s guidelines on restructuring individual loans.

Banks are summarily rejecting requests for loan recasts based on their interpretation of eligibility rules, they said. (File photo for representation)

Banks are summarily rejecting requests for loan recasts based on their interpretation of eligibility rules, they said.

Debt recasts typically involve extending the tenure of a loan and may include a higher interest payout over the extended period. In some cases, banks also allow moratoriums to stressed borrowers for a defined period, after which the repayment schedule resumes. Announcing the debt recast window, the RBI in August said banks may allow borrowers to also avail of moratoriums on restructured loans.

After laying out broad eligibility norms, RBI let individual lenders decide on which accounts to approve. Many borrowers, however, said this has led to a situation in private banks where the rate of rejection of recast proposals is much higher than at public sector lenders. “In several cases where banks have agreed to allow debt recast, requests for a moratorium was rejected,” said a borrower at one of India’s largest private sector banks, requesting anonymity. “It takes a lot of persuasion even to get a recast approved,” this borrower said, adding “banks should allow a moratorium as part of the scheme.”

Banks, on their part, maintain that they are in the process of identifying stressed borrowers, and identifying genuine cases is a tedious and time-consuming process. They ask customers to prove that they had either lost their jobs or had their incomes substantially reduced by the pandemic. “Restructuring is available to customers to avail up to December 31, 2020; they can make a request, and we have a policy around how we will deal with such requests. As of 30 September, we have not granted any restructuring in any of our portfolios,” said Puneet Sharma, chief financial officer, Axis Bank.