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WHAT IS RESTRUCTURING OF BANK LOANS ?

Posted Date: 14-09-2020 Posted By: user

The Indian economy has seen the worst lean period because of the lockdown situation followed by the worldwide Coronavirus pandemic.

All sectors of industries have seen a stop in manufacturing. After the step-by-step unlock, industries are struggling with a shortage of labors and raw material.

No wonder it will hamper the 
npa account settlement process as well. Experts recommend the need for restructuring of loans to combat the situation. Surely nclt lawyers india will have to deal with an increased number of NPA cases in the future.

When the borrower is unable to repay the loan despite all efforts, he can approach the bank for restructuring. It happens only if the bank is convinced that the restructuring will address the existing stress of the loan.
 

Why restructuring?

Restructuring is a loan settlement process that entertains genuine borrowers, who are unable to repay the loan regularly because of the financial crisis. When a borrower defaults, his credit rating score affects adversely. Restructuring of the loan helps to remove the overdue amount and improves the credit score.
 

Loan repayment rescheduling matches the operational cash flow



When the loan payment schedule is restructured, it matches the operational cash flow. Agencies that manage the funding for npa accounts observed that the cashflow shrinks for a certain period. However, it comes to the earlier levels after some time.

Real operational issues tide over by rescheduling of the loan.
 

Dropping the interest rate



It is another method of loan restructuring. At times, it happens that banks issue loans at a higher rate than the ideal rate. The reason for it could be several. Higher interest rates are not recommended, and they create the worst impact when the situations are adverse.

Borrowers may approach the financial institution for the reduction of the interest rate so that the loan can be repaid without any difficulty.

Rate reduction puts a positive impact on the project cost. IT makes the loan viable again.
 

Interest waiver

When banks impose charge penalties or extra interest on the unpaid amount, it adds to the project cost. In extreme situations, banks waive off the excess interest as part of the restructuring of the loan.