Banks plan EMI postponement for a home loan restructure

Lenders, including SBI, are working on restructuring home loans options where the total loan term does not expand by more than two years, even after relaxing the repayment schedule.

The options include allowing EMI delay for a few months in cases where the borrower has suffered a total loss of income or allowing step-up EMIs, with a lower payout for a few years to make up for a reduction in salary or loss of earnings due to the COVID19 pandemic.

As per the sources, the KV Kamath committee will not look into retail, and home loan restructuring and banks will draw up their proposal which they will submit to their boards by next month after getting an idea about the number of borrowers facing difficulty.

Bankers are keen to restructure loans to avoid having to classify defaulters as non-performing assets. Banks also say that this isn't the right time to enforce security and attach assets. Though RBI allowed banks to extend loan tenure by two years, bankers say that they will not be able to provide a two-year moratorium.

Anyone with a 15-year loan and availed moratorium for six months will already see their overall loan tenure extend by 14 months. So, banks can postpone EMI by a few months. The exact relaxation will depend on the interest rate that the borrower is paying. Home loan rates have been reduced to less than 7%; banks say that it will be challenging to offer their best prices to restructured loans as lenders have to make an additional provision of 10%. This will increase the costs by up to 30 basis points.

As per the terms of reference of RBI's appointment, the Kamath committee is expected to submit its report by mid-September. Bankers hope the committee to give various parameters for restructuring including the maximum debt-equity ratio to be allowed, the permissible leverage for each sector like hospitality, aviation, real estate, or construction.

The committee would also make a decision under what circumstances conversion of debt to equity can be allowed. Moreover, every individual corporate loan, where bank exposure is more than Rs 1,500 crore, would be reviewed by the committee to consider restructuring.