Axis Bank’s eligibility standards for structuring retail loans are much broader

Private sector lender Axis Bank has set out much broader standards for retail mortgage or auto borrowers affected by COVID-19 to review their two-year loan restructuring request.

The Mumbai-headquartered bank gave a list of examples of borrowers struggling to meet medical or other emergency expenses incurred for themselves or their family members. With over 6 million cases, mostly in large centers like Maharashtra, Andhra Pradesh, Tamil Nadu and Delhi, some of the borrowers are affected due to a medical emergency.

Likewise, the borrowers’ cash position is taken into account in the event of a delay in the construction of the property purchased. The delay in owning an apartment increases the rental charge during uncertain events like COVID-19.

In addition, it is also possible for borrowers to suffer due to the continued lockdown, residence in a containment zone, or a workplace or industry affected by COVID-19.

The comprehensive list of private banking covers all the possible reasons for stress in a retail loan account.

Other banks have directly linked loan stress to lost income through lower wages or job loss. Axis Bank also specified loss of income as the main reason, but also detailed other probable reasons.

The country’s largest bank, State Bank of India (SBI), said a borrower will be considered affected by COVID-19 based on the pay cut, job loss, closure of the l business, shutdown during lockdown, and downsizing of business. Restructuring would be granted on the basis of these documents.

The largest private bank HDFC Bank said there must be clear evidence that the borrower’s business or source of funds or income is directly affected by COVID-19.

The current restructuring facility comes at a cost. Banks charge additional interest rates or processing fees.

The SBI charges an additional interest rate of 35 basis points on top of the current price for the remaining term of the loan. It is a high price for a restructuring. The state bank may consider probable default or loan loss after two years as part of the overall restructured loan basket. However, private banks like HDFC Bank and Axis Bank charge a one-time processing fee for loan restructuring.

Besides the additional cost, borrowers opting for restructuring will also receive a “restructured label” on their credit bureau report, which will give them different treatment compared to a borrower with the same credit rating but without a restructured label. Obviously, the banks will become more cautious when giving them a new loan.

Also read: Prepare for the ‘restructured’ label on the loan reset credit report