Owed to the pandemic, the Indian economy has taken a huge hit. To address the economic distress caused by the pandemic and its subsequent lockdown, the RBI has taken certain measures such as the Loan Restructuring Scheme. This scheme entails that borrowers could redraft their obligations on a new repayment term as agreed upon by both the bank and the borrower. This includes rescheduling EMIs, lowering Interest rates, conversion of high interest rates into another loan, or availing a loan moratorium extended up to 2 years. This one time Restructuring helps borrowers honor their loans, whilst reducing their burden to some extent. However, unlike the Moratorium that could be availed by all this scheme would only be used by those who have been adversely affected by the pandemic, and aren’t in the position to repay.

This may sounds like a ray of hope to many, a scheme that's being back by the government, as well as the financial sector of the society so as to bring some economic stability. However one must also consider the fact that this Scheme only offers a short term relief if any at all. Unlike the Moratorium that was offered by the central government with the clear indication of it having no affect on ones CIBIL score whatsoever, no such mention has been made by the RBI or the government about the LOAN RESTRUCTURING SCHEME. Therefore it’s highly possible that loan restructuring can reflect on ones CIBIL, which can directly or indirectly effect ones CIBIL Score.

Known to most, the CIBIL score is an essential aspect of ones financial credibility, and a true reflection of their financial standing. Future financial borrowings such as getting loans approved, low rate of interest, credit card approvals and their credit limits are all benefits we enjoy for having a good CIBIL Score. Opting for loan restructuring would curtail borrowing capacity. Therefore any new loan requests may be stalled until the current obligations aren’t drastically reduced. These are long term implications that greatly effect ones future financially. Some may argue that although the CIBIL score would be affected by the loan restructuring, it wouldn’t be as affected in comparison to one caused by irregular/ delayed EMI payments. Which could be true to an extent, however, it is imperative for one to know that loan Restructuring isn’t their only way of reducing their financial obligations.

Our humble opinion to one and all would be to see the Loan RESTRUCTURING SCHEME as the last resort, and instead opt for other means to ensure regular EMI installments are paid. For an individual with good CIBIL Score the best alternative to loan restructuring would be to consider taking another loan that offers a lower rate on interest in comparison to the current one, and/or increases the tenure. Or liquidating low interest based assets especially if the loan interest rates are higher than the interest rate of that of the assets. Since this would help keep that CIBIL strong for the time being, and pave its way to building more assets in the future.

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