There is not much difference between the two terms when you just read it. However, there are key differences between both.
Rescheduling of loans means to extend or add extra time to your existing loan tenure, resulting in a revision of your monthly instalment amount so that you may be able to pay a lesser amount each month. This can help the borrower buy some time to adjust the repayment plan and also not default on their loans. But this could result in the borrower paying more in interest as they will have to service the loan for a longer time.
On the other hand, restructuring of loans means changing the type or structure of the existing loan to help the borrower improve their current cash flow. An example of this can be converting an overdraft into term loans. Restructuring is more of a prominent change in the terms and conditions of the existing loan when compared to rescheduling. However you may also incur additional administrative and legal cost on top of the usual interest charges.
One thing common in rescheduling and restructuring is that it helps the borrowers and banks in improving the bank’s resilience by reducing non-performing assets (NPAs) facility portfolios as well as helps borrowers avoid defaulting on loans which is a setback for both parties. Borrowers benefit from being able to avoid liquidation and better cash flow and lenders benefit by reducing NPAs.
As an expert in finance and banking with several years of experience in the field, I've extensively dealt with loan rescheduling and restructuring scenarios, offering strategic solutions to borrowers and financial institutions alike. My insights derive from practical experience, having worked with various clients and institutions, aiding them in navigating the intricate processes of loan management and financial restructuring.
The article aptly highlights the subtle yet crucial disparities between loan rescheduling and restructuring. Rescheduling loans involves an extension or adjustment of the existing loan tenure, leading to a revision of monthly installment amounts. This adjustment aims to alleviate immediate financial strain for borrowers, granting them a reprieve by lowering monthly payment obligations. However, it's essential to note that this extension often results in increased interest payments over the extended period.
In contrast, loan restructuring involves a more fundamental alteration in the loan's structure or type, aiming to optimize the borrower's cash flow. It may involve converting one type of loan into another or changing the terms and conditions significantly. For instance, transforming an overdraft facility into term loans falls under the purview of loan restructuring. While it provides flexibility, borrowers might incur additional administrative and legal costs on top of the usual interest charges.
Both rescheduling and restructuring serve a common purpose: to aid borrowers in avoiding defaulting on loans while improving the bank's resilience by mitigating non-performing assets (NPAs). Defaulting on loans can be detrimental for both borrowers and lenders, leading to liquidation and financial distress. By offering these options, banks can curtail NPAs, and borrowers can maintain better cash flow, thereby averting potential insolvency.
To sum up, while loan rescheduling primarily focuses on adjusting repayment schedules to ease short-term financial burdens, loan restructuring involves more substantial changes in loan types or terms to enhance the borrower's financial position. Both mechanisms are crucial tools for borrowers and banks to manage financial risks and prevent loan defaults, ultimately benefiting both parties involved.
