Vinu: Hey Manu, I’ve sanctioned a term loan of Rs 1.50 crore for 7 years, including a 6-month gestation period for plant and machinery, and a cash credit limit of Rs 0.45 crore. The client has been paying interest during the gestation period and has already paid 3 installments. But now they’re facing problems with installment payments and want progressive installments without changing the repayment period. Do you think this would count as restructuring?

Manu: Hi Vinu! Yes, this could potentially be classified as restructuring. Even though the borrower isn’t asking to extend the repayment period, changing the installment structure from fixed to progressive still modifies the original loan terms. This would likely fall under restructuring because the borrower is in financial difficulty and is requesting an adjustment to the payment schedule.

Vinu: Oh, I see. So, just by asking for a change in the installment pattern, it could be considered restructuring?

Manu: Exactly. Even without changing the tenure, the restructuring is triggered when there’s a modification in the loan’s terms due to the borrower’s financial stress. Converting to progressive installments changes the repayment structure, which can lead to the loan being classified as restructured.

Vinu: So, what should I consider before agreeing to this?

Manu: First, consult your bank’s internal restructuring policies and regulatory guidelines, like those from the RBI. Check if this modification would officially qualify as restructuring. Second, assess the borrower’s financial situation to ensure progressive installments will actually help them manage repayments better. Lastly, make sure to properly document the changes in the loan terms and get the borrower’s acknowledgment.

Vinu: And if I agree to the progressive repayment, could it impact the loan classification?

Manu: Yes, it might. Restructuring a loan often results in it being classified as stressed or restructured, which could affect your bank’s provisioning requirements and the borrower’s credit profile. You’ll need to assess the potential consequences before making any decisions.

Vinu: Got it, Manu. Thanks for the detailed guidance!