Opting for the loan restructuring facility could provide relief to borrowers facing economic hardships during the Covid-19-led crisis, but it could impact their credit scores.
“If the loan gets restructured and is so reported by banks, for which the Reserve Bank of India has already issued guidelines, there will be a detrimental impact on the credit score. Repayment behaviour is one of the important factors that go into the credit score algorithm,” said Manu Sehgal, Business Development Leader, Emerging Markets, at credit bureau Equifax.
He further said that credit bureaus have a field called ‘restructured’ due to natural calamities and it is expected that banks could use it for reporting Covid-19-led restructuring.
“But irrespective of why it has been restructured, the moment an account is not reported as standard any more, there would be an impact on the credit score,” he said.
Loan moratorium
However, those who took the loan moratorium would not see an impact on their credit history.
The RBI, in its August 6 circular on the resolution framework for Covid-19-related stress, had said that the credit reporting by lending institutions in respect of borrowers – where the resolution plan is implemented under this facility – shall reflect the ‘restructured’ status of the account if the resolution plan involves renegotiations that would be classified as restructuring under the Prudential Framework.
“The credit history of the borrowers shall consequently be governed by the respective policies of the credit information companies as applicable to accounts that are restructured,” it had further said.
Most credit bureaus that BusinessLine approached were tight lipped on the issue.
“The data will be reported by the lenders and the algorithms have not changed. So, any restructuring will be a factor in a person’s credit score,” said an industry expert, noting that this, in turn, would make it tougher to get a loan in the future.
In its FAQs on the loan restructuring scheme, HDFC Bank has said the loan or credit facility will be reported to the credit bureau as ‘restructured’.
“…as per regulatory guidelines, restructuring has to be reported at a borrower level to the credit bureaus and, hence, all the facilities or loans of the borrower with the bank will be classified and reported as ‘restructured’ even if the borrower has taken restructuring for only one loan,” the bank has said.
When asked if the recast would impact credit scores, CS Setty, Managing Director (Retail and Digital Banking), State Bank of India had said he was not certain. “It is a very peculiar situation,” he had told reporters.