Loan Restructuring
Loan Restructuring is a financial process in which the terms and conditions of an existing loan are modified to help the borrower manage repayment more effectively during financial stress.
Types of Loan Restructuring
Here are the most common types
Tenure Extension
The repayment period is extended, reducing the EMI amount and easing monthly repayment pressure.
Interest Rate Reduction
The interest rate is lowered to make the loan more affordable and manageable for the borrower.
Moratorium Period / Payment Holiday
A temporary suspension of EMI payments for a few months, allowing borrowers to stabilize their finances before resuming repayment.
Conversion of Unpaid Interest into Term Loan
Any accrued or overdue interest is converted into a separate loan, allowing borrowers to repay in installments over time.
Debt Consolidation / Loan Rebalancing
Multiple outstanding loans are merged into one consolidated loan with a single EMI and better repayment structure.
Principal Repayment Rescheduling
In this case, the principal amount’s repayment schedule is modified, often with smaller EMIs initially and larger payments later (step-up repayment model).
Why Is Loan Restructuring Important?
Prevents Loan Default
Helps borrowers avoid default or NPA classification, maintaining a good credit record.
Supports Financial Recovery
Provides temporary relief to businesses and individuals facing income loss or market slowdown.
Maintains Credit Score
Proper restructuring ensures that loans are reported as "restructured" rather than "defaulted", protecting creditworthiness.
Promotes Business Continuity
Enables MSMEs and corporations to continue operations without liquidity disruptions.
Customizes Repayment Plans
Lenders and borrowers can agree on mutually suitable repayment schedules, improving financial flexibility.
FAQs
What is Loan Restructuring?
Loan restructuring is the process of modifying existing loan terms to make repayment easier for borrowers experiencing financial hardship.
Does restructuring affect credit score?
Yes, a loan marked as “restructured” may slightly impact credit score, but it’s still better than a loan default or NPA classification.
What options are available under loan restructuring?
Borrowers can choose tenure extension, reduced EMIs, interest rate modification, or moratorium depending on lender approval.
Is there any eligibility for restructuring?
Yes. Borrowers must show genuine financial hardship, consistent repayment history before distress, and proof of income reduction.
What is the typical restructuring period?
It depends on the loan type but can range from 6 months to 2 years for temporary relief, extendable under RBI-approved schemes.