Restructured tag may hit credit score, but it is better than an NPA

BENGALURU: If you are someone whose income has taken a huge hit due to job loss, a wage-cut,  or even business setbacks, and are now worried about paying your EMIs, the RBI’s loan-restructuring scheme may come to your rescue.

With benefits like an extension of the loan tenure and a moratorium of up to two years, the RBI has asked the lenders to design their own framework to rejig loans—which will be implemented by next year. However, many retail borrowers are wary of applying for the restructuring due to fears over what the restructured tag could do to their credit score.

A low credit score, experts agree, will act as a detrimental factor in a borrower’s chances of availing future loans. “The banks regularly share all the loan data with the credit agencies which maintain a credit score for the borrowers. This essentially determines credit worthiness , especially the probability of defaults,” a banking analyst said.

The restructured tag, which will show on a borrower’s credit profile, is likely to have an impact credit scores. Banks and NBFCs are particularly wary of lending to individuals or institutions with debatable credit profiles. They may ask for increased collateral or issue only small ticket loans. 

HDFC Bank, for instance, has said that those who opt for the loan restructuring scheme will be reported to credit bureaus as “restructured”. In addition, the lenders will also ask the borrowers to furnish the evidence of a fall in income, termination of service, or business loss to judge whether the borrower is eligible for the benefits under the loan rejig scheme.

However, according to an analysis by credit health platform Credit Mantri, it is still better to go for restructuring when faced with an NPA. “(Restructuring) will hurt your credit score. (But) this is still a better choice compared to the impact of an NPA on your credit score. Once that happens, it is difficult to bring it back on track,” warned the note.

The impact of restructuring on credit score is also not an insurmountable problem, experts say, if the borrower has a credible repayment history. The main thing to consider while tryin to ensure a healthy credit score is clearing your credit card dues and EMIs as soon as possible.

Better than an NPA
Restructuring will harm your credit score
But the impact from the loan becoming an NPA is higher
Impact of restructuring is easier to correct than an NPA