5/25 scheme of RBI
What is the 5/25 scheme?
1) It is a scheme introduced by RBI to enable banks to provide a longer repayment period to companies facing financial issues.
2) It allows banks to extend long-term loans of 20-25 years to match the cash flow of projects every 5-7 years.
3) It is especially given to infrastructure and core industries. ✌✌✌
4) Interest can be reduced here but review every 5 years.
5) It is also known as the infrastructure process.
This is a unique and fresh topic in the Indian economy. Many important schemes in this article were introduced by RBI after 2015. So in UPSC and Govt exams, many new questions are asked regarding this. So please read it carefully and make notes. ??
How does the 5/25 scheme work?
1) The bank will endorse the Initial Debt Facility for a medium-term, say 5 to 7 years.
2) This is to deal with the starting development period and furthermore cover the time frame in any event up to the date of initiation of business activities (DCCO) and income increase.
3) The principal suitability of the venture is set up based on all imperative monetary and non-monetary boundaries.
4) The adequate degree of interest inclusion proportion (EBIDTA / Interest payout), showing the ability to support the advance and capacity to reimburse over the tenor of the advance.
4) At the hour of starting the examination of such ventures, banks will fix an amortization plan (Original Amortization Schedule).
5) The renegotiating (Refinancing Debt Facility) after every one of these 5 years would be of the diminished sums decided according to the Original Amortization Schedule.
RBI guidelines on 5:25 scheme
1) Just term credits surpassing Rs.500 crores to projects in the framework area and in the center businesses area. ???
2) NPV of the credit stays the same when the adjustment in advance amortization plan.
3) The Fresh Loan Amortization Schedule ought to be inside 85% of the underlying concession time frame/introductory financial life.
4) The practicality of the venture is rethought by the bank and reviewed by the Independent Evaluation Committee established under the aegis of the Framework for Revitalizing Distressed Assets in the Economy.
On the off chance that an undertaking credit is delegated ‘rebuilt standard’ resources as on the date of fixing the Fresh Loan Amortization Schedule, this won’t be considered as ‘continued rebuilding’, the advance should keep on being named ‘rebuilt standard’ resource.
Any ensuing changes to the previously mentioned Fresh Loan Amortization Schedule will be represented by the surviving rebuilding standards.
What is Loan Restructuring?
When you can’t pay a loan due to some personal reason. Also, some natural calamities like covid occur, then banks increase your tenure to pay loans. Here, you get relief but your interest increases and hence pay more overall.
Here your actual EMI reduces as per the bank. The Finance Minister and RBI Governor have the power to bring this law.
Who is eligible for loan restructuring?
There are 3 types of people who are eligible. They are:-
1) Personal loans one those who are regarded as individuals.
2) MSME Segment i.e Entities: Must be less than 25 cr for GST rules.
3) Others:- Other than those 2 ones and come in the borrower’s category.
There also must not be a delay of EMI more than 30 days. These will surely make a bad impact on you. ??
What is the S4A scheme of RBI?
The full form of S4A stands for Scheme for Sustainable Structuring of Stressed Assets (S4A). It is related to bad loans. Here they restructured old bad loans whose business is going smoothly recently.
It was launched by RBI on 13th June 2016. They have an amount of about 500 cr. It is only applicable to operational projects. Banks also rework on stressed loans.
It is a Spinal cord for the 5/25 scheme of RBI.
What is NPA in RBI?
NPA stands for Non-Performing assets. India ranks in the top 5 in the whole world in NPA. This is not a proud but shameful thing. When an organization stops giving loans back to the bank it is categorized as NPA.
It becomes overdue after 90 days of straight not paying EMI. ??
These are also again classified into 3 categories:-
3) Lost assets
It is declared when the bank analyzes its balance sheets.
What are SDR, JLF, CAR, and CDR in Banking?
- JLF scheme: Joints lenders forum
- CDR scheme: Corporate debt restructuring cell
- SDR scheme: subscribers details record
- CAR scheme: Customer acquisition form
This is most important in the 5/25 scheme of RBI. ☝☝☝
Flexible structuring scheme RBI
This scheme is related to existing loans. After the financial year of RBI is over on 31st March, this all is overviewed.
What does loan recast mean?
The recasting of loans means after some time and EMI paid, you amend it. Recasting is done in existing loans.
Refinancing loans is a very simple term. It is taking new loans to cover old loans in the account. Here profit you get is that your interest gets reduced. Experts say it varies from 1-2 %.
This is the most important term in the banking sector. It includes a mixture of NPAs, restructuring loans, and written-off assets. The biggest two examples of these are Anil Ambani and Vijay Mallya.
Stressed assets= NPAs + Restructuring loans + Written off assets. ???
Some natural calamities like covid or man-made calamities like war may be the reason for stressed assets.
Frequently asked questions:-
In this article, we learned about the 5/25 scheme of RBI. This article sheds light on the loan process between Indians and RBI. Important topics like loan restructure, recasting, stressed assets, refinance, SDR, JLF, CAR, CDR are discussed here.
This is the most important topic from the UPSC and Indian economy point of view. If we overview the previous question paper then you will get to know that there were many questions asked on it.
Also, this topic is fresh and unique. So the content is very low. We had done more research to write this article. If you really like this please share it with your friends.