Funded Interest Term Loan (FITL)

In simple words, Funded Interest Term Loan (FITL) is giving a loan for repaying an existing loan. It’s a kind of loan restricting mechanism whereby lender would give the borrower money to repay the interest component of the loan. It is an ingenious tool recently brought out by RBI in order to tackle the growing NPA burden in India. The idea is to give companies breathing space to repay the loan by getting a moratorium. In this way, the pending amount to be recovered could be a recovered and FITL could be considered a blessing.

Some notable points for FITL are as follows:

• FITL is a mechanism like other loan restructuring mechanism to enable a company facing financial crisis to meet its loan obligations.
• The borrower gets a breather to repay the loan.
• Banks are saved from the account being classified as an NPA.
• FITL is a part of deep restructuring. It involves longer-than-usual repayment terms, lower interest rates and a moratorium on repayment.
• The unpaid interest component of an existing loan is carved out as FITL, upon which the bank gives the borrower a moratorium.
• However, if the borrower has not even been able to repay the FTIL, the lender (Bank) has no option but to ultimately classify the account as an NPA.

However, there are chances that the companies may simply take it for granted the provision and may ultimately make the pending debt an NPA. A better provision would be to specify the deadline upon which the FITL would expire and if the debt is not recovered, convert the pending debt to SDR.

Further Note: UPSC may ask you about various loan restructuring schemes available to Indian borrowers. Apart from mention the latest tool FITL, you can cite some other options to restructure the pending loans from the borrowers. First is the 5:25 scheme whereby the borrowers get an extended tenure for repayment. This in a way eases the borrower by simply giving an opportunity to repay. Second is the Strategic Debt Restructuring (SDR) whereby lenders take control of the company and bring in new management. This would be considered as the last step and there are no chances of recovering the loan from the borrower. Third is S4A method whereby the debts are converted into equity.