Policy for Restructuring 2.0 for Education
Loans & Small Businesses for
Covid-19 related stress

Education Loan, Personal Loans & Small Businesses (Non-MSME)

Section-1

Salient features of the RBI circular as applicable for Loans to Individuals & Small Business (Non-MSME): –

  1. Resolution plan under this circular can be sanctioned to borrowers who have availed Education Loans, Personal loans & Loans for small Business (Non-MSME) having aggregate exposure up to Rs. 50 Crore across Banks/NBFCs. However, if any education loan/Personal loan is provided to own personnel/staff shall not be eligible for resolution under this framework
  2. The borrower’s account shall be standard as on March 31, 2021.
  3. The borrower’s account will continue to be classified as standard till the date of invocation of resolution under this framework. (Date of invocation - date on which both the borrower and lending institution have agreed to proceed with a resolution plan)
  4. Resolution under this framework may be invoked not later than 30th September 2021 and must be implemented within 90 days from the date of invocation.
  5. The resolution plans may inter alia include rescheduling of payments, conversion of any interest accrued, or to be accrued, into another credit facility, or, granting of moratorium, based on an assessment of income streams of the borrower, subject to a maximum of two years. Correspondingly, the overall tenor of the loan may also get modified commensurately. The moratorium period, if granted, shall come into force immediately upon implementation of the resolution plan.
  6. Eligible borrowers shall submit application in required format for resolution under the framework and decision on the application shall be communicated in writing within 30 days.
  7. The reference date for the outstanding amount of debt that may be considered for resolution shall be March 31, 2021
  8. Accounts already Restructured under Framework 1.0 earlier will only be considered only if
    1. Resolution plan under 1.0 permitted no moratorium or moratorium of less than two years, and/or
    2. Extension of residual tenor by less than two years
    In such cases, permitted features of resolution plan shall include:
    • Increasing the Moratorium; or
    • Extension of residual tenor
    The overall limit on moratorium and / or extension of residual tenor granted under Resolution Framework – 1.0 and 2.0 combined, shall be two years.
  9. A restructuring would be treated as implemented if the following conditions are met:
    1. All related documentation, including execution of necessary agreements between lenders and borrower / creation of security charge / perfection of securities are completed or any other documentation mode as acceptable to Avanse Financial Services Ltd; and
    2. The changes in the terms and conditions of the existing loans get duly reflected in the books of the lender and
    3. The borrower is not in default with the lender as per the revised terms.
  10. The resolution under this facility shall be extended only to borrowers having stress on account of COVID19
  11. Asset Classification –
    1. If a resolution plan is implemented in adherence to the provisions of this policy, the asset classification of borrowers’ accounts classified as Standard may be retained as such upon implementation, whereas the borrowers’ accounts which may have slipped into NPA between invocation and implementation may be upgraded as Standard, as on the date of implementation of the plan
    2. Additional finance to borrowers in respect of whom the resolution plan has been invoked, if sanctioned even before implementation of the plan in order to meet the interim liquidity requirements of the borrower, may be classified as ‘standard asset’ till implementation of the plan regardless of the actual performance of the borrower with respect to such facilities in the interim.
    3. However, if the resolution plan is not implemented within the stipulated timelines, the asset classification of the additional finance sanctioned will be as per the actual performance of the borrower with respect to the additional finance or the rest of the credit facilities, whichever is worse.
    4. After implementation of the resolution plan in terms of this policy, the subsequent asset classification will be governed by the provisions of RBI Master Direction dated September 1, 2016.
  12. Provisioning Norms –
    1. The lender shall keep provisions from the date of implementation, which are higher of the provisions held as per the extant IRAC norms immediately before implementation, or 10 percent of the renegotiated debt exposure of the lender post implementation (residual debt).
    2. Any unreversed provisions maintained, if any, in terms of provisioning requirements of RBI circular dated April 17, 2020 (i.e. Moratorium provisions) can be utilized for meeting the provision requirements in all cases under this policy.
    3. Any unreversed provisions maintained, if any, as per this policy shall be available for meeting the provisioning requirements when any of the restructured accounts is subsequently classified as NPA.
  13. Reversal of Provisions – In case resolution is availed under this facility, half of the above provisions may be written back upon the borrower paying at least 20 per cent of the residual debt without slipping into NPA post implementation of the plan and the remaining half may be written back upon the borrower paying another 10 per cent of the residual debt without slipping into NPA subsequently.
  14. Any resolution plan implemented in breach of the above stipulated timeline shall be fully governed by the Prudential Framework
  15. Disclosures in Financial Statement:
    Half-yearly disclosures shall be made as per prescribed format starting from March 31, 2022 (consisting of all restructured accounts during the reporting period). The said half yearly disclosures shall be made till the time restructured exposures are extinguished or becomes NPA
  16. The credit reporting in respect of borrowers where the resolution plan is implemented under this facility shall reflect the “Restructured due to Covid-19” status of the account if the resolution plan involves renegotiations that would be classified as restructuring under the Prudential Framework
  17. All other instructions applicable to restructuring of loans shall continue to be applicable

General Conditions for considering Restructuring taken from master circular of RBI applicable for restructuring:

  1. Restructuring of the advances shall comply with all the extant regulatory norms for restructuring in force as notified by the RBI from time to time.
  2. Existence of borrower's financial difficulty for economic or legal reasons, due to which concessions to the Borrower are proposed, which otherwise would not have been considered.
  3. Restructuring may involve modification of terms of the advances / securities, alteration of repayment period / repayable amount / the amount of installments / rate of interest (due to reasons other than competitive reasons).
  4. Restructuring shall not be allowed with retrospective effect.
  5. Restructuring cannot take place unless alteration / changes in the original loan agreement are made with the formal consent / application of the debtor. The process of restructuring can be initiated by AFSL in deserving cases subject to customer agreeing to the terms and conditions.
  6. No account shall be taken up for restructuring unless the financial viability is established and there is a reasonable certainty of repayment from the borrower, as per the terms of restructuring package.
  7. No account shall be considered for restructuring without looking into cash flows of the borrower and assessing the viability.
  8. Borrowers indulging in frauds and malfeasance shall continue to remain ineligible for restructuring.
  9. ix. Loan accounts which are already assigned or securitized to other Banks or NBFCs by us prior to April 01, 2021, shall be restructured (incl. change in loan sanction terms) with prior approval on record of the respective Assignee of such loan accounts, and in accordance with the respective contractual agreements and/or RBI guidelines.

Section-2

Due diligence criteria, viability assessment and credit authority delegation:

Eligibility to consider a case under resolution:

  1. Request from the relevant borrower shall explain the stress, which shall be only on account of Covid-19.
  2. The Covid-19 stress shall have or resulted into adverse financial impact on the concerned borrowers.
  3. Covid-19 stress related any condition leading to temporary inability to repay the debts as per the existing terms of the loan may be considered. However, there shall be a visibility or potential of revival, if the resolution is granted. Some of the illustrations (but not limited to) of such impact could be as below:
    1. Finished their study but employment got delayed/impacted due to Covid-19
    2. Earlier employed (full time/part time) but lost employment due to Covid-19
    3. Employed (full time/part time) but salary got reduced or low salary due to Covid-19
    4. Co-applicant/Parents employment/Business impacted by Covid-19
    5. Any customer where financial stress is related to Covid-19
  4. The above conditions shall be corroborated with the relevant material or reasonable explanation to the satisfaction of Avanse.

Income & viability assessment (Indicative list):

  • In case, concerned borrower was/is a salaried class, at least 3 salary slips to be collected (reflecting in the bank statement) of borrower/co-borrower
  • Future income of student can be considered based on fair assessment of post qualification compensation from the respective university/college
  • Any past and/or existing record relating to income
  • Assessment of FOIR to be done

Assessment of financial stress in case borrower/co-borrower is a self employed person (Indicative list):

  • Audited Financials for last two years or ITRs of last two years where financials are not audited
  • YOY projected cash flow statements/revenue projections/Expected cash flow
  • Bank statements
  • Latest debtors/Creditors statement (if any)
  • GST returns/Sales ledger (if any)
  • Debt profile along with status of moratorium and restructuring on other loans (if any)
  • Any document or business specific event having financial impact
  • Assessment of DSCR / FOIR to be done

Additional due diligence

  • Latest credit bureau report to be generated for all borrowers and co-borrowers
  • Collections feedback

Monitoring of the restructured accounts

  1. Repayment track of restructured accounts to be closely monitored.
  2. In case of adverse observations on monitoring or delays in loan servicing post restructuring beyond 30 days, recovery measures should be accelerated.

Review:
This policy is subject to periodic reviews basis business, legal and regulatory requirements. Any changes identified as per the review, shall be carried out to this Policy with approval of CEO.