Part 05 — The Lending Lifecycle

Special Workflows

Purpose

Special workflows handle lifecycle events that do not fit ordinary servicing or collections: moratorium, repayment holiday, borrower or promoter death, insolvency, restructuring, subvention, insurance claim, subsidy adjustment, partner split operations, and co-lending reconciliation. These are low-frequency but high-risk events. If they are handled through emails and manual ledger entries, the lender creates accounting breaks, customer disputes, incorrect days past due (DPD), and regulatory misclassification.

The most important distinction is between a contractually sanctioned feature and a concession due to financial difficulty. A moratorium built into a machinery loan at sanction is normal product design. A later EMI holiday because cash flows failed may be restructuring if it grants concession for borrower stress. RBI’s IRAC framework defines restructuring as a lender granting concessions for economic or legal reasons relating to the borrower’s financial difficulty, including changes to payment period, instalment amount, interest rate, rollover, additional credit to cure default, or compromise settlement where payment exceeds three months (Master Circular - Prudential norms on IRAC, April 1, 2025).

Actors

Credit approves restructures, moratorium changes, top-up linked cures, and material covenant relief. Operations executes schedule changes and ledger events. Collections provides borrower-contact history and settlement conduct. Legal handles death claims, insolvency notices, security enforcement, guarantees, and documentation amendments. Finance validates accounting and interest recognition. Compliance checks IRAC, KFS, digital-lending, co-lending, and grievance implications. In co-lending, partner operations and risk teams must approve and mirror events.

Inputs & Documents

Inputs depend on workflow. Moratorium changes need borrower request, reason, revised cash flow, revised repayment schedule, and approval. Promoter death needs death certificate, legal heir documents, succession/legal-heir certificate or probate where required, partnership reconstitution deed, board changes, guarantor review, insurance claim documents, and account-operation mandate. Insolvency needs National Company Law Tribunal (NCLT) or Debt Recovery Tribunal (DRT) notices, Insolvency and Bankruptcy Code (IBC) filings, moratorium order if admitted, and proof of claim.

Restructuring requires stress note, viability assessment, revised terms, security status, additional collateral or guarantee if any, board/committee approval, borrower acceptance, and asset-classification impact. Subvention requires anchor or manufacturer agreement, invoice, subsidy/subvention calculation, tax treatment, and reconciliation evidence. Co-lending split operations need escrow statements, partner share, blended rate, DPD alignment, and partner-wise ledger.

Step-By-Step Workflow

A trigger is created from customer request, collections note, legal notice, death intimation, partner file, or portfolio action.
The workflow is classified: product moratorium, operational correction, restructuring, settlement, death/legal-heir, insolvency, subvention, or co-lending exception.
The system freezes unsafe actions. For example, do not issue a clean foreclosure letter during a disputed restructuring; do not release collateral during insolvency; do not alter schedule without approval.
Credit and legal assess whether the request is a concession for financial difficulty. If yes, restructuring rules apply, not ordinary servicing.
Revised terms are generated. These may include moratorium period, step-up EMI, balloon payment, tenor extension, reduced rate, funded interest term loan (FITL), additional security, or part payment.
Documentation is executed: amendment agreement, revised KFS where applicable, guarantee confirmation, security confirmation, board resolution, and partner approval.
LMS posts the approved changes with audit trail, preserves old and new schedules, recalculates DPD according to policy/regulation, and updates bureau/co-lending partner reporting.
Monitoring tasks are created for satisfactory performance, insurance claim follow-up, legal-heir documentation, or partner reconciliation.

Exceptions & Edge Cases

Moratorium is often misunderstood. A pre-sanction construction or machinery-installation moratorium usually accrues interest and does not make the account stressed if payments begin as contracted. A post-disbursement moratorium granted because the borrower cannot pay may be restructuring, even if the lender calls it “relief”.

Promoter death is operationally delicate for proprietorships and partnership firms. A proprietorship has no separate legal personality from the proprietor, so death can freeze account operations and trigger claim against estate, guarantors, insurance, or legal heirs. In a partnership, death may dissolve the firm unless the deed provides continuity. In a company, promoter death may not change borrower identity, but personal guarantee, key-man risk, and shareholding control matter.

Insolvency changes playbook. Once a corporate debtor is admitted into corporate insolvency resolution process under IBC, lenders must respect the moratorium and file claims through the resolution professional. For sole proprietors and partnerships, insolvency routes are different and often less used in SME practice; legal advice is case-specific.

Subvention creates accounting and customer-communication risk. A machinery dealer may promise “9% customer rate” while the lender books a 14% loan and receives upfront subvention from the dealer. The borrower-facing APR, invoices, GST treatment, refund on cancellation, and early-closure treatment must be clear.

Systems Touched

LMS schedule engine, restructuring module, collections system, legal case module, document generation, bureau reporting, accounting/GL, insurance claims, escrow/co-lending reconciliation, grievance system, and partner APIs. Every special workflow needs immutable before/after values: principal, interest rate, tenor, EMI, overdue amount, DPD, asset classification, provisions, fees waived, and approver.

TATs/SLAs Typical In Industry

Simple operational corrections should close in 1-3 working days. Moratorium or tenor-change requests usually take 3-7 working days for small tickets and 7-15 days for secured or committee cases. Death/legal-heir workflows can take 15-60 days depending on documents and disputes. Restructuring can take 2-6 weeks for bilateral SME exposures and much longer in multiple-banking cases. Subvention reconciliation should be same month as disbursement or invoice cancellation.

Stage Metrics

Track restructuring request volume, approval rate, post-restructure performance, moratorium extension frequency, FITL outstanding, death-case ageing, insurance claim recovery, subvention breaks, partner reconciliation breaks, DPD correction count, bureau correction count, and manual ledger adjustment value. A key control metric is “schedule changes without approved workflow”; it should be zero.

Co-Lending/Partner-Origination Variant

Special workflows are harder under co-lending because one borrower action affects two RE books. The 2025 Co-Lending Directions require each RE to maintain a borrower’s account for its share, route disbursements and repayments through escrow, disclose partner roles, and apply borrower-level asset classification alignment; default information must be shared near real time and no later than the next working day (RBI Co-Lending Arrangements Directions, 2025). A restructure, waiver, refund, settlement, DLG invocation, or write-off therefore needs partner-wise approval logic and split accounting. Under the 2025 Digital Lending Directions, default loss guarantee (DLG) is capped at 5% of the upfront specified portfolio and DLG invocation does not reduce borrower liability (RBI Digital Lending Directions, 2025). Systems must not net DLG recoveries against customer dues.