The state government of Manipur recently invoked the Riot Provision of the Reserve Bank of India (RBI) in response to a grave situation marked by riot and violence within the state. The order recognizes the challenges faced by borrowers in repaying their loans due to this crisis and seeks measures to assist these individuals. This marks a first in the use of this provision in a law-and-order situation, which is typically applied in areas affected by natural calamities.
RBI Directions 2018 and Its Provisions
The latest development descends from the “Reserve Bank of India (Relief Measures by Banks in Areas Affected by Natural Calamities) Directions, 2018,” specifically Chapter No. 7. According to these directions, whenever the RBI advises banks to provide rehabilitation assistance to those affected by riot/disturbances, the said guidelines should be broadly adhered to by the banks. These provisions specifically address the situations of “Riots and Disturbances.”
These rules outline several norms for loan restructuring, provisioning of fresh loans, adherence to KYC norms, amongst other measures. Notably, it mentions all short-term loans, excluding ones overdue at the time of the riots, will be eligible for restructuring.
Applicability of the Directions
The provisions contained in these directions apply to every Scheduled Commercial Bank (including Small Finance Banks, but excluding Regional Rural Banks) licensed to operate in India by the RBI.
Restructuring of Crop Loans
In relation to crop loans, if the loss ranges between 33% and 50%, the borrowers are granted a maximum repayment period of two years. If the crop loss surpasses 50%, the repayment period can be stretched up to five years. Further, all restructured loan accounts will have a minimum moratorium period of one year.
Provisions for Long Term Agri Loans
If there is damage to the crop without any harm to productive assets, banks can reschedule installment payments for the impacted year and extend the loan period by a year. Additionally, banks have the option to postpone interest payments from borrowers. If productive assets are damaged, a new loan may have to be sanctioned.
Provisioning of Fresh Loans and KYC Norms
Banks will assess borrowers’ credit needs, follow loan approval procedures, and may provide collateral-free consumption loans up to Rs 10,000 to existing borrowers without personal guarantees, even if the value of the assets is lower than the loan amount. Additionally, for individuals who have lost their documents due to riots, banks are required to open new accounts for them, provided the balance in the account does not exceed Rs 50,000 and the total credit doesn’t cross Rs 1,00,000.
Understanding Loan Restructuring
Loan restructuring enables businesses, people, and governments to prevent bankruptcy through negotiation of lower interest rates on their debts. It serves as a less costly alternative when a debtor is struggling to repay their debts. The main objective of debt restructuring is to maintain and save the business while protecting it from creditors using the law. If the company doesn’t file for bankruptcy, creditors are likely to retrieve more money. For individuals seeking loans, a debt-restructuring personal loan can yield better results for creditors.
The development in Manipur brings to light the importance of provisions such as these in addressing law-and-order situations and providing relief measures to affected individuals. It also highlights the role of RBI in financially aiding those affected by riots or disturbances.
