How Lending Systems can Integrate the RBI advised Loan Moratorium

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Less than a month ago, the Reserve Bank of India (RBI) made an announcement to all lending institutions, such as banks and non-banking finance companies (NBFCs), advising them to provide a three-month moratorium on all term loan payments falling between March 1, 2020 and May 31, 2020. This nudge from the RBI opened a floodgate of questions from financial institutions and customers alike. 

While financial advisories handle the queries from a customer point of view, as experts in the lending domain, we chose to address the greater issue of incorporating the new instructions in your lending systems and how you can augment this knowledge for your financial institution.

We have created a detailed checklist for each component of your Lending System and the parameters to be considered to integrate the RBI Advised Loan Moratorium.

Bank Analysis and Preparation:

  1. Identify the loan products where Moratorium can be extended and where it is not excluded.
  2. Introduce mid-term moratorium (payment holiday) in selected loan products as part of the loan product construct
  3. For the loan products selected establishing the following criteria
    1. Default Moratorium Option for every loan product/scheme
    2. Recent payment history. If the payments are defaulted in the recent past, then moratorium need not be extended.
    3. If there are no payouts scheduled during the moratorium period (like pre EMIs in HL, Education loans which are already on moratorium, Bullet Payments)
    4. In case of OD/CC accounts, the rules for recalculating the “drawing power”
  4. How to extend the moratorium feature: Complete (P+I) or partial (flexibility for customer to choose the amount).
  5. Redefine the loan provisioning criteria
  6. Strategy for new loan applications: a. Provide the Moratorium from Day 0 b. Provide the Moratorium for selected loan products
  7. In case of Supply Chain, CD or Invoice based loans, what is the strategy for extending the moratorium to the third parties apart from the borrower.
  8. In the case of Co-Lending, what is the strategy for informing and deferring repayments to Co-lenders.
  9. Ensure that all reports (internal and external) aligned with the moratorium window and are not marked as defaulters
  10. There will be borrowers whose loan would end during the moratorium period, however would have opted the moratorium. For some of these cases, if the borrowers are not opting for loan closure in one installment, a loan restructuring might be required.

Customer Dashboard System:

  1. Screens to exercise the Option for different loan products
  2. Info/FAQs about the Moratorium
  3. Ability to claim any EMIs paid during the moratorium period
  4. Change/Extend the NACH/eMandate for the tenure if needed
  5. Change/Extend the NACH/eMandate for the EMI amount if needed
  6. Regenerated Payment Schedule for post moratorium period
  7. Provide flexibility to the customer for choosing part amount for moratorium

LMS System:

  1. For bounced cheques/ECS, a logic to ignore such bounces during the moratorium period including any penal charges and any reporting of these bounces. 
  2. DB script for defaulting the moratorium option value
  3. DB Script for inculcating the moratorium period for applicable loans and waiving of moratorium fees
  4. DB script for regenerating payment schedules
  5. DB Script to reverse any paid EMIs.

GL/Accounting System:

  1. Reversal any paid EMIs collected
  2. Reversal any moratorium fees collected
  3. Reversal any cheque bounce or late payment fees collected
  4. Map these reversals to separate ledger apart from the existing ones. This will help in identifying these transactions for any future government subsidy/ benefits. However, these entries are equivalent to waived-off entries.

Collections Systems

  1. Modify collection triggers according to new repayment schedule

Notifications Systems

  1. Notify borrowers the URLs for Moratorium opt-ins
  2. Notify borrowers the impact of choices
  3. Notify borrowers the FAQs
  4. Notify borrowers the regenerated repayment schedule for post moratorium period

It is important to keep up with the latest developments in lending especially as digital lending becomes more prevalent in these times of remote working. To incorporate new developments at the earliest, the best strategy is to first examine each individual component and then work on the greater picture. To get more insights into working your Lending System, stay tuned to our blog for regular updates.