Loan Restructuring
Loans & CreditLoan restructuring modifies the terms of an existing loan when a borrower faces repayment difficulty -- extending tenure, reducing interest rate, or converting accumulated interest into principal. It prevents the account from becoming NPA while giving the borrower breathing room.
In detail
Types of restructuring:n1. Tenure extension: increase from 15 to 25 years -- reduces EMI but increases total interest paidn2. Interest reduction: bank reduces rate (rare, usually requires negotiation)n3. Interest moratorium: principal repayment continues, interest accrues for latern4. FITL (Funded Interest Term Loan): unpaid interest converted to a separate loannnRBI COVID restructuring (2020-21): RBI allowed banks to restructure loans for COVID-impacted borrowers without NPA classification. Conditions: must be standard account as of March 1, 2020.
Formula
Real-life example
Priya lost job, Rs 35L home loan with 18 years remaining. EMI Rs 32,000 (unaffordable at Rs 22,000/month income). Bank restructures: extends tenure to 25 years remaining. New EMI: Rs 24,500. Manageable. But she pays Rs 9L extra in total interest over the extended period.