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RBI releases guidelines on restructuring MSMEs loans; allows restructuring of debt up to Rs 25 crore

The central bank allowed a one-time restructuring of existing debt of up to Rs 25 crore for the MSMEs which have defaulted on payment, however, the loans given to them continue to be classified as standard assets.

Jan 2, 2019 13:13 IST
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The Reserve Bank of India (RBI) on January 1, 2019 released guidelines on restructuring of advances to the Micro, Small and Medium Enterprises (MSMEs).

The central bank allowed a one-time restructuring of existing debt of up to Rs 25 crore for the MSMEs which have defaulted on payment, however, the loans given to them continue to be classified as standard assets.

The move will help MSMEs facing cash crunch in the wake of demonetisation and GST implementation.

Guidelines on restructuring of advances to MSMEs

  • For restructuring of existing loans to MSMEs that are in default but 'standard' as on January 1, 2019, the RBI decided to permit a one-time restructuring without an asset classification downgrade.
  • A provision of 5 percent in addition to the provisions already held shall be made in respect of accounts restructured under this scheme. However, the Banks will have the option of reversing such provisions at the end of the specified period, subject to the account demonstrating satisfactory performance.
  • Post-restructuring, the Non-Performing Assets (NPAs) classification of these accounts shall be made as per the existing IRAC norms.
  • Each bank or Non Banking Financial Company (NBFC) shall formulate a policy for this scheme with Board approval. The policy shall include framework for viability assessment of the stressed accounts and regular monitoring of the restructured accounts.
  • Banks and NBFCs shall also make appropriate disclosures in their financial statements under ‘Notes on Accounts’, relating to the MSME accounts restructured under the instructions.

Eligibility

To be eligible for the scheme, the aggregate exposure to a borrower should not exceed Rs 25 crore as on January 1, 2019, including non-fund based facilities of banks and NBFCs.

The borrowing entity, i.e. MSME, should be GST-registered on the date of implementation of the restructuring. However, this condition will not apply to MSMEs that are exempt from GST-registration.

The restructuring has to be implemented by March 31, 2020.

The restructuring would be treated as implemented, if the following conditions are met:

  • All related documentation, including execution of necessary agreements between lenders and borrower are completed by all lenders
  • The new capital structure and changes in the terms and conditions of the existing loans get duly reflected in the books of all the lenders and the borrower.

Background

Earlier, the RBI's board in its meeting, held on November 19, 2018, had advised the central bank to examine a scheme for restructuring of stressed standard assets of MSME borrowers with aggregate credit facilities of up to Rs 25 crore.

The Micro, Small and Medium Enterprises form an important component of the Indian economy and contribute significantly to the country’s GDP, exports, industrial output, employment generation, etc.

Considering the importance of MSMEs, the RBI considered it necessary to take certain measures for creating an enabling environment for the sector.

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