The Reserve Bank of India (RBI) on Wednesday announced several relief measures to help citizens, small businesses, healthcare providers and vaccine makers to tackle the second wave of the pandemic.

One key announcement made by RBI Governor Shaktikanta Das was regarding the Resolution Framework 2.0 for individual borrowers, small businesses and MSMEs.

The RBI has released a detailed press release to explain the framework under which loan restructuring can be availed by individuals or small businesses struggling to repay loans.

RESOLUTION FRAMEWORK 2.0 FOR INDIVIDUALS

The central bank said it has provided a window to enable lenders to implement a resolution plan for loan repayment by individuals under the Resolution Framework 2.0.

Noting that the localised lockdowns have hurt individuals during the second wave, it said the extension of the resolution framework will offer much-needed financial support to struggling borrowers.

Simply put, the resolution framework will allow banks to offer a moratorium or revised loan repayment schedule to burdened borrowers.

It is similar to the Resolution Framework 1.0 was announced last year by the central bank to help retail borrowers struggling with loan repayments.

Under the plan, individuals could opt for a restructuring of the loan — moratorium and rescheduling of payment — if their payments were not overdue by more than 30 days.

CAN YOU OPT FOR FRESH REPAYMENT RELIEF?

Individuals who have availed loans with aggregate exposure of less than Rs 25 crore as of March 31, 2021 are eligible to apply for the Resolution Framework 2.0.

Retail borrowers who did not opt for the earlier resolution framework announced in August last year can benefit from the Resolution Framework 2.0 till September 30, 2021.

However, there are certain conditions that need to be fulfilled for availing the benefit.

“Borrowers i.e. individuals and small businesses and MSMEs having aggregate exposure of up to Rs 25 crore and who have not availed restructuring under any of the earlier restructuring frameworks (including under the Resolution Framework 1.0 dated August 6, 2020), and who were classified as ‘Standard’ as on March 31, 2021 shall be eligible to be considered under Resolution Framework 2.0,” RBI Governor Shaktikanta Das said.

"Restructuring under the proposed framework may be invoked up to September 30, 2021 and shall have to be implemented within 90 days after invocation,” he added.

This suggests that the loan account of a borrower needs to be classified as ‘standard’ as of March 31, 2021. Borrowers who are applying for the first time under Resolution Framework 2.0 are permitted a moratorium or revised repayment schedule for up to two years.

It may be noted that the loan relief measures will also be available to individuals who have opted for restructuring in the Resolution Framework 1.0 but not to the extent of two years.

“In respect of individual borrowers and small businesses who have availed restructuring of their loans under Resolution Framework 1.0, where the resolution plan permitted moratorium of less than two years, lending institutions are being permitted to use this window to modify such plans to the extent of increasing the period of moratorium and/or extending the residual tenor up to a total of 2 years,” the RBI said.

Suppose an individual had opted for an 8-month moratorium under the Resolution 1.0 framework and the tenure of the loan went up by six more months after it was restructured. The total restructuring period comes to 14 months. In such a scenario, the individual can avail restructuring under the Resolution 2.0 framework for 10 more months.

SHOULD YOU OPT FOR IT?

Tax experts suggest that the loan repayment relief — be it a moratorium or rescheduling of EMI repayment — should be only availed if your finances have been hit hard during the second wave of Covid-19.

If you can afford to repay your monthly loan instalments, there is no need to opt for loan repayment relief under the Resolution Framework 2.0. Borrowers should note that availing for a moratorium or revised payment schedule under the resolution plan will increase the interest on your loan.

Therefore, you should only apply for the resolution plan when you are likely to default on a loan due to a lack of funds.